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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

--------------------------------

FORM 10-K

--------------------------------

|    |  |                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001      
|   
|    |  | OR                                                                                                                                    
|   
|[ ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to______

Commission file number 000-22001

DELTEK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

|                                |  |                    
|------------------------------- |  | -------------------
|Virginia                        |  | 54-1252625         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)

|                                         |  |  |            | 
|---------------------------------------- |  |  | ---------- | 
|8280 Greensboro Drive, McLean, Virginia  |  |  | 22102      | 
|(Address of principal executive offices) |  |  | (Zip Code) | 

Registrants telephone number, including area code: (703) 734-8606

Securities registered pursuant to Section 12(b) of the Act:

|                                                  |  |                                                                 
|------------------------------------------------- |  | ----------------------------------------------------------------
|Title of each class
Common Stock, $.001 par value |  | Name of each exchange on which registered
Nasdaq National Market

Securities registered pursuant to Section 12(g) of the Act: None





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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 12, 2002, was $53,448,551 based on a total of
7,690,439 shares held by non-affiliates on that date and computed by reference
to the closing price reported on the Nasdaq National Market on that date, which
was $6.95 per share.

The Company had 15,342,039 shares of Common Stock, $.001 par value,
outstanding as of March 12, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information to be contained in the registrants proxy statement for the
2002 annual meeting of the registrants shareholders, which is to be filed
pursuant to Regulation 14A within 120 days after the end of the fiscal year
covered by this Form 10-K, is incorporated into Part III of this report by
reference to such proxy statement.





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|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|ITEM 1. BUSINESS                                                                             
|ITEM 2. PROPERTIES                                                                           
|ITEM 3. LEGAL PROCEEDINGS                                                                    
|ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|ITEM 6. SELECTED FINANCIAL DATA                                                              
|ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                  
|ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|ITEM 11. EXECUTIVE COMPENSATION                                                              
|ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|FINANCIAL STATEMENTS                                                                         
|Consent of Arthur Andersen LLP                                                               
|Confirmation Letter                                                                          



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TABLE OF CONTENTS

|         |  |                                                                                       |  |  |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | -- | 
|ITEM 1.  |  | BUSINESS                                                                              |  |  | 4  | 
|ITEM 2.  |  | PROPERTIES                                                                            |  |  | 17 | 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                     |  |  | 17 | 
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS                                   |  |  | 17 | 
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS                 |  |  | 18 | 
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                               |  |  | 18 | 
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS |  |  | 21 | 
|ITEM 7A  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK                            |  |  | 41 | 
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA                                           |  |  | 42 | 
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE                   |  |  | 42 | 
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT                                    |  |  | 42 | 
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                |  |  | 42 | 
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT                        |  |  | 42 | 
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS                                        |  |  | 42 | 
|ITEM 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K                      |  |  | 43 | 

-------------------------------------

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report includes certain
forward-looking statements. The words anticipates, believes, estimates,
expects, plans, intends and other similar expressions are intended to
identify these forward-looking statements, but are not the exclusive means of
identifying them. Readers are cautioned not to place undue reliance on these
forward-looking statements as these forward-looking statements reflect the
current view of the Company or its management and are subject to certain risks,
uncertainties and contingencies which could cause the Companys actual results,
performance or achievements to differ materially from those expressed in or
implied by these statements. These risks, uncertainties and contingencies
include, but are not limited to, the factors discussed under the heading
Managements Discussion and Analysis of Financial Condition and Results of

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Operations, Managements Discussion and Analysis of Financial Condition and
Results of Operations - Factors that May Affect Future Results and Market
Price of Stock and elsewhere in this Annual Report. Deltek undertakes no
obligation and does not intend to update, revise or otherwise publicly release
the result of any revisions to these forward-looking statements that may be
made to reflect future events or circumstances.

PART I







ITEM 1. BUSINESS

Deltek Systems, Inc. (Deltek or the Company) is a leading provider of
enterprise software products that enable professional services organizations
and project-oriented businesses to more effectively manage, operate and grow
their operations. Our software products address the needs specific to such
organizations through a wide range of functionality, such as financial and
project accounting, employee time and expense, human resources management and
administration, materials management, project reporting, customer relationship
management, sales force automation and proposal generation. We also provide a
full range of services, including implementation and consulting, training and
ongoing support. In the year ended December 31, 2001, 25.0 % of our total
revenues were derived from software license fees and 72.2 % of our total
revenues were generated from services. We currently serve, and have active
relationships with, over 8,000 project-oriented customers across a spectrum of
industries, including IT services and consulting, architecture, engineering and
environmental, systems integration, research and development, contract services
and construction, as well as make-to-order manufacturers and not-for-profit
organizations. Many of these project-oriented businesses provide products and
services under federal government contracts.

Industry Background

Increasing competition has created pressure for organizations to better
utilize information technologies to manage their businesses, improve
efficiency, reduce costs and provide employees and management with more timely
and pertinent information. Information technology is now viewed as a strategic
and tactical tool, as well as a means of facilitating information processing
and reducing costs. As a result, many organizations are implementing
enterprise-wide business systems to automate their operations, including
finance, accounting, manufacturing, human resources, budgeting and reporting
functions. In addition, organizations are recognizing the need to deploy
front-office professional service automation (PSA) solutions as a means of
better managing customer relationships in the face of increasing competition.

Another important application space that Deltek addresses is customer
relationship management (CRM). Analysts forecast continued rapid growth in the
CRM space with approximately $26 billion in investments for CRM applications,
systems integration and consulting, and related hardware and networking
platforms for 2001. Analysts expect this trend to continue with little or no
slowdown in these investments over the next three to five years.

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Most enterprise-wide business systems sold by other software vendors are
general purpose in design and, without significant customization, do not
address many of the unique requirements of businesses engaged primarily in
providing products and services under project-specific contracts and
engagements. Project-oriented organizations have many project-specific business
and accounting requirements. Such requirements include the need to track costs
and profitability on a project-by-project basis, to provide timely project
information to managers and customers, and to submit accurate and detailed
bills, often in compliance with complex industry-specific and regulatory
requirements. Many project-oriented organizations provide products and services
under government contracts. Project accounting for these organizations often
requires the use of sophisticated methodologies for allocating and computing
project costs and revenues.

The use of project-oriented and professional service business application
software systems is expanding as a result of a number of economic trends.
Service organizations traditionally have utilized project accounting more than
manufacturing firms due to the need to customize their services for each client
and to properly allocate the associated revenues and costs. Therefore, as the
shift from a manufacturing-based economy to a service-based economy continues,
the market for project-oriented organizations is expanding. Furthermore, the
trend towards outsourcing an increasing range of activities broadens the market
for project-oriented organizations as both customers and vendors need to track
the costs associated with their projects. Finally, many organizations with
significant internal development activities can benefit from the use of project
accounting systems to closely monitor their progress and cost.

As the number and type of project-oriented and professional service
organizations increase, such businesses are demanding increasingly
sophisticated tools to address their core information and accounting needs,
including project accounting, employee time collection, project budgeting,
project reporting, customer relationship management, sales force automation and
proposal generation. At the same time, these organizations are recognizing
that, because most aspects of their businesses revolve around their customer
project relationships, they can achieve efficiencies in a number of project
accounting and business functions, such as general ledger, accounts payable,
accounts receivable, materials management and human resources, through the use
of software applications designed to address the special needs of
project-oriented organizations. Like other businesses, project-oriented and
professional services organizations are also demanding solutions that allow
them to combine their business software applications into a single integrated,
enterprise-wide system.

The Deltek Solution

Deltek is a leading provider of enterprise software and professional
service automation products that enable project-oriented and professional
service firms to more effectively manage, operate and grow their operations.
Our software products address the needs specific to such organizations through
a wide range of functionality, such as financial and project accounting,
employee time and expense, human resources management and administration,
materials management and project reporting, customer relationship management,
proposal management, and business intelligence. We also provide a full range of
services, including implementation and consulting, training and ongoing
support.

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Since our inception, we have focused exclusively on developing and
providing products and services designed to meet the needs of project-oriented
organizations. We believe that this focus is a competitive advantage in serving
project-oriented markets relative to software vendors that offer more
general-purpose enterprise software. We believe that our solutions generally
require shorter implementation times and cost less to install and maintain than
general-purpose enterprise solutions. The primary software product suites that
we currently market consist of Deltek Costpoint®, an advanced
client/server-based business software accounting system designed for all types
of complex project-oriented organizations; Deltek Vision, a brand new and
integrated, project-focused enterprise system designed for professional
services firms; Deltek GCS Premier, project accounting software for small-to
mid-sized organizations providing products or services under contracts with the
federal government; Deltek Time Collection (formerly ET Enterprise ), an
advanced employee timekeeping system; and Deltek CRM and Deltek Proposals, a
front-office customer relationship management solution for professional service
environments.

We also provide implementation, consulting, training and ongoing support
services. We have a staff of approximately 100 system consultants who are
engaged by our customers to directly assist with system implementation. Beyond
implementation, we provide training either on site or at one of our four
training centers. We also provide ongoing product maintenance and technical
support to our customers, which is a significant source of recurring revenues.

Strategy

Our objective is to strengthen our position as a leading provider of
enterprise software products to project-oriented organizations and to become a
recognized leading provider of professional services automation solutions by
pursuing a strategy that includes the following elements:

Maintain Focus on Project-Oriented Markets.

Since our inception, we have focused on addressing the unique business
needs of project-oriented organizations. We believe that our exclusive focus on
developing applications for project-oriented organizations is a competitive
advantage in serving these markets relative to companies that offer more
general-purpose enterprise software. We believe that our solutions generally
are better suited for project-oriented organizations, require shorter
implementation times and cost less to install and maintain than general-purpose
enterprise solutions. We intend to capitalize on the expertise that we have
developed by continuing to market to project-oriented organizations, including
those performing federal government contracts, architecture and engineering
firms and other professional and technical organizations.

Expand and Enhance our Enterprise Products for Sophisticated Project
Businesses.

We have developed a family of complementary products with broad-based
functionality, usable in a variety of technology environments, which we offer
to larger, more sophisticated project-oriented organizations in such industries
as aerospace and defense, research and development, IT services and
integration, construction and research and development. Many of

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these organizations provide goods and services to the Federal government.
We intend to continue to expand the breadth of our product offerings and to
enhance the features and functionality of each of our currently marketed
applications to these types of businesses. Our development initiatives center
around functional and technological enhancements for Costpoint, our
client/server product that primarily fueled our growth from 1996 to 2000.
Specific development areas for Costpoint include the further improvement of
Costpoint to operate on Web-based technology platforms, enhancement of
international capabilities, and enhancements to address needs in specific
industries such as construction and aerospace and defense.

While Costpoint is very competitive with other major ERP systems with
respect to features and capabilities for project-oriented businesses, the
market has become more focused on the need for Web-based applications. The
lack of a fully Web-enabled system has hindered our growth objectives and we
intend to increase our development with respect to the Web-based development of
our Costpoint system. We have recently delivered Deltek Costpoint 4i, a
version that provides a number of mission-critical applications on a
browser-based, n-tier architecture developed for the Web using Java and
Enterprise JavaBeans technology. We expect that additional Web-based
applications in Costpoint will be released in stages over the next few years.

Deliver a New End-to-end Solution to
Professional Services Customers.

Since August of 2000, Deltek has been developing a new, Web-based system
that will address the automation needs of a wide variety of smaller and
mid-sized professional services firms, including architectural, engineering,
IT and management consulting, and accounting firms. This new system, called
Vision, will integrate applications for accounting and finance, project
accounting and reporting, billing, employee time and expense, payroll and human
resources, resource planning, client relationship management and proposal
generation. The Deltek Vision architecture is based on the industry-leading
n-tier component-based Internet architecture from Microsoft, which includes the
popular SQL Server RDBMS platform. Deltek Vision is scheduled for Beta release
in the 2nd quarter of 2002 and general release in the 3rd quarter of 2002.

We are now beginning to market Deltek Vision to many of our current
professional services customers that are currently using our Advantage and
Semaphore systems. We also plan to market this new system to a wider range of
professional services firms including IT and management consulting firms and
accounting firms.

Capitalize on the Growth in Federal Contracting

Due to an expected increase in defense and national security spending, we
expect Federal government contract spending and activity to increase in the
next several years. For the past 15 years, Deltek has been a recognized
leader in providing systems for firms that do business with the Federal
government. Delteks solutions uniquely provide capabilities that enable
customers to maintain their accounting records in a manner that is approved by
the Defense Contract Audit Agency (DCAA) and other governmental oversight
bodies. We plan to increase our sales and marketing activities to Federal
contractors to leverage our leadership position in this area.

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Leverage Large Installed Customer Base

Our large installed customer base of approximately 8,000 customers enables
us to generate revenues from ongoing services and product enhancements provided
to these customers. Our strategy is to (i) maintain and strengthen
relationships with our existing customers by providing ongoing support
services; (ii) derive additional revenues by migrating clients to more advanced
products within our product line, licensing add-on application software
products and offering our customers additional consulting and training
services; and (iii) target existing customers to purchase front office
solutions such as Deltek CRM and Proposals, Deltek Time Collection, Deltek
Employee Expense, Deltek Enterprise Planner, Deltek Employee Self-service, and
Deltek e-Procurement.

Products

Delteks products are currently organized in three primary application
areas: 1) Enterprise solutions for larger, sophisticated organizations, 2)
integrated applications for professional services firms and 3) applications for
small to mid-sized firms having contracts with the Federal government.

Enterprise Solutions

Our enterprise product suite is targeted to larger project-oriented
businesses having sophisticated accounting and business requirements. It
encompasses the following software applications:



| |  |  | Deltek Costpoint.Deltek Costpoint is an advanced back office
solution for organizations having complex project, accounting and
business requirements operating in a variety of project-oriented
industries. Costpoint includes over 25 modular applications from
project and financial accounting to human resources and materials
management.                                                                                                                                                                                                                                                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | Deltek Costpoint also meets the common regulatory and reporting
requirements of businesses with Federal government contracts. Deltek
Costpoint combines these capabilities with applications in other business
system areas that are designed for the special needs of project-oriented
businesses. Through its open data architecture and the use of drill-down
inquiries, on-line analytical processing (OLAP) tools and standard
reports, Deltek Costpoint provides managers with timely and pertinent
information.                                                                              
|
| |   |  | Deltek Costpoint utilizes a relational database architecture on the
server and Microsoft Windows operating systems on the desktop client PC.
It can be operated on a variety of network operating systems, including
Windows NT, UNIX and Novell Netware and currently supports Oracle Systems
Corporation (Oracle), Microsoft SQLServer, and Centura Corporation
(Centura) relational databases. Deltek Costpoint employs 32-bit
technology and was developed with extensive use of object-oriented
programming techniques utilizing a fourth generation language together
with C++ and database-

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| |  |  | specific stored procedures to maximize performance. As a result of this
architecture, Deltek Costpoint is scaleable and can be utilized in
organizations with 3 to 300 concurrent users.                                                                                                                                                                                                                    
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We began development of Deltek Costpoint in 1992 and commercially
released the product in June 1995. Through December 31, 2001, we had
licensed approximately 850 Deltek Costpoint systems, mostly to
organizations having annual revenues in excess of $50 million. License
fees for Deltek Costpoint systems vary depending on the number of users
and sites and the number and types of modules licensed.
|
| |  |  | We recently released Deltek Costpoint 4i which provides a number of
mission-critical applications on a browser-based, n-tier architecture
being developed for the Web using Java and Enterprise JavaBeans
technology.                                                                                                                                                                                     
|
| |  |  | The following table lists the principal Deltek Costpoint application
areas and modules:                                                                                                                                                                                                                                                                                                                     

|                           |  |                                                                                                                                                                                                                       
|-------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Application areas          |  | Modules                                                                                                                                                                                                               
|                           |  |                                                                                                                                                                                                                       
|Financial Accounting Suite |  | General Ledger; Travel;
Accounts Payable; Fixed Assets;
Accounts Receivable; Workflow;
Consolidations; Multicurrency                                                                                                  
|                          
|Project Accounting Suite   |  | Project Setup; Project Billing;
Project Reporting; Project Cost and
Revenue Processing; Project Budgeting;
Project Management Interfaces                                                                              
|                          
|People Management Suite    |  | Labor/Leave; Benefit Tracking;
Payroll; Labor/Payroll Interfaces;
Human Resources; Employee Self Service                                                                                                              
|                          
|Materials Management Suite |  | Product Definition; Sales Order Entry;
Purchasing; Receiving; Production Control;
Procurement Planning; Routings
Inventory; Engineering Change Notices;
Bills of Material; Requirements Planning;
Materials Estimating



| |  |  | Deltek CRM and Deltek Proposals:This application provides a
complete solution for all front office communications, business
development and marketing challenges. Designed to enhance customer
relationships and increase productivity, these tools provide sales
force automation, opportunity management, customer relationship
management, marketing automation, and proposal generation tools. It
provides the tools that sales, marketing and business development need
to create award-winning proposals and feature embedded reports,
activity tracking, forecasting, calendaring, and MS Outlook® and e-mail
integration.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Deltek Time Collection(formerly ET Enterprise) and Deltek Employee
Expense: Provides increased management visibility and control of
projects and operations. Tracks daily labor activity and historical
data, giving supervisors, project managers and executives access to
pertinent information in a timely manner, preventing costly project
overruns and reducing billing time in addition to enabling federal
contractors to comply with government auditing regulations. These
product interfaces with all Deltek products as well as enterprise
applications from PeopleSoft®, SAP®, Oracle®, JD Edwards® ADP®,
PayAmerica® and Solomon®.                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Deltek Enterprise Planner:Handles corporate-wide financial
planning, budgeting and forecasting needs and automates the process for
evaluating, budgeting and balancing project and task-specific resource
allocations. This application offers an easy-to-use environment for
project managers to set initial budgets for projects and then to
automatically create rolling forecasts updated with actual project
hours and costs. Interfaces with Deltek Costpoint and Deltek GCS
Premier.                                                                                                                                                                                             
|
| |  |  | Deltek Business Intelligence:Designed to leverage Internet
technology making information easily accessible to everyone in the
organization as well as customers. Functionality includes Managed Web
Reporting, Web-based Analysis and Trending, Web Query and Reporting, BI
Portal, Ad Hoc Query and Reporting, Analysis and Trending,
Visualization, Data Warehousing and Quick-Start Program.                                                                                                                                                                                                                                                                                         
|
| |  |  | Deltek e-Business applications:Recently introduced e-business
applications include Deltek Employee Self Service and Deltek
eProcurement. The Deltek Employee Self Service application allows every
employee in the organization the ability to maintain, update, and
review critical information regarding their benefits, including
electronic pay information, thus eliminating one of the most time
consuming jobs for any HR professional. Seamlessly integrated to
Deltek Costpoint, this application ensures that timely changes to
personnel information are maintained without the need for rekeying of
information, or redundant review of payroll and HR benefits
information.
|
| |   |  | Deltek eProcurement is an Web-based solution that automates complex
internal workflow processes and dynamically links via XML to any vendor
catalog, buying exchange or customer-specific catalogs. By converting
paper-based procurement practices to Internet processes, controlling
unauthorized purchasing and creating more efficient internal workflow
processes, Deltek delivers the operating efficiencies that project
businesses need to create immediate cost savings and long-term
efficiencies.                                                                                                                                                                            

Professional Services Automation Solutions

Our software solutions for small and mid-sized professional services firms
include the following:



| |  |  | Deltek Advantage.Deltek Advantage, an integrated, project-focused
accounting system for professional services firms, was designed and
developed by Harper and Shuman, which we acquired in May 1998. The
Deltek Advantage product currently includes comprehensive modules for
Project Control, Accounting, Billing, Accounts Payable,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |   |  | Payroll, Profit Center Reporting, Timekeeper, Multi-User and
Expensekeeper. Deltek Advantage employs 32-bit technology, provides a
superior user interface utilizing current Microsoft Windows platforms,
and utilizes either Microsoft SQLServer or Access database platforms.
Deltek Advantage can operate on a stand-alone PC or within a local or
wide area network environment.                                                                                                                                                                                                           
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | Deltek Advantage has fewer modules, is generally less complex and easier
to implement and results in a lower cost of ownership than Deltek
Costpoint. Accordingly, the Company markets Deltek Advantage primarily
to small and mid-sized professional services firms with relatively less
complex requirements.                                                                                                                                                                                                                                                                                
|
| |   |  | We began development of Deltek Advantage in 1995 in response to the
technical maturation of the CFMS product line. Deltek Advantage was
commercially released in December 1996. Through December 31, 2001, it
has been licensed to approximately 3,000 organizations, primarily
architecture and engineering firms. License fees for Deltek Advantage
systems vary depending on the number of the customers employees and
sites and the number and types of modules licensed.                                                                                                                 
|
| |  |  | Deltek Sema4:This product family, acquired in August 2000, is a
fully integrated project and financial management software system
designed for the small to mid-sized architectural and engineering
firms. Sema4 Windows is used by approximately 2,000 customers with
sizes ranging from 5 to 900 employees. Although we are still selling
new modules and employee series upgrades to existing Sema4 Windows
clients, we are no longer selling this product to new prospects. Our
strategy is to eventually migrate users to our new PSA solution,
Vision, when it becomes available in 2002.
|
| |  |  | Deltek CRM and Deltek Proposals:As previously indicated, this
application provides a complete solution for all front office
communications, business development and marketing challenges. It
provides the tools that sales, marketing and business development need
to create award-winning proposals and feature embedded reports,
activity tracking, forecasting, calendaring, and MS Outlook® and e-mail
integration.                                                                                                                                                                      
|
| |  |  | Deltek Vision:As previously indicated, Deltek Vision will be
released in 2002 and is intended to become Delteks primary offering to
professional services firms, targeted to existing Deltek Advantage and
Deltek Sema4 customers, as well as new customers in all types of
professional services industries.                                                                                                                                                                                                                                                                                 

Government Contractor Solutions

Since our inception, we have specialized in delivering business
applications to small- and medium-sized government contractors. These are
primarily offered within two application suites.

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| |  |  | System1.This DOS-based system was our original accounting system for
Federal government contractors. We estimate that approximately 2,000
companies have licensed System1 since it was commercially released in
1985. As of December 31, 2001, approximately 600 customers were
actively using and continuing to pay for ongoing support services
related to System1. Since our introduction of our more advanced GCS
Premier and Deltek Costpoint systems, sales of System1 have
significantly declined. Our strategy is to continue to migrate these
System1 users to our Costpoint and GCS Premier products, delivering
similar functionality with modern technology and updated feature sets.
We provide significant discounts to customers migrating from System1
to GCS Premier and Costpoint.                                                                                                                                                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Deltek GCS Premier. GCS Premier is Delteks Windows-based,
enterprise accounting solution currently marketed to small to
mid-sized businesses focused on earning revenue from government
contracts. This product was released in March 2000. In addition to
its Windows-based interface, it features flexible, state-of-the-art
component based software construction achieved with MS Visual Basic
6.0 and ActiveX controls. GCS Premier was designed specifically to
ensure that our System1 customers could easily migrate to GCS without
the necessity of data conversion while preserving System1s critical
processing programs, complex reports and other time-tested legacy
programs. GCS Premiers Windows-based user interface tightly
integrates with its process-oriented design. Its pull-down menus are
workflow-like in their functionality and provide an intelligent,
intuitive capability that makes it easy for users to learn the
application by navigating from process to process.

Third-Party Products

We incorporate into our software products certain application software
licensed from third parties. Our Business Intelligence Tools, including
Impromptu and Power Play, are both licensed from Cognos Corporation, and the
System1 report-writer, Intelligent Query, is also licensed from a third party.
These Business Intelligence Tools represent enterprise solutions for database
query and reporting on the desktop and over the Web. The tools enable the user
to quickly and easily create any query and report, while providing
administrators with flexibility, scheduling and distribution capabilities. In
order to support Oracle, Sybase and Centura relational databases, Deltek
Costpoint contains certain native router software licensed from Centura. In
addition, our Deltek Costpoint customers must license applicable database
software from Oracle, Centura, or Microsoft, either directly or through Deltek.
Because some customers desire a turnkey solution, we occasionally purchase
servers, network software and other software and hardware products, which we
resell or sublicense to our customers and install with Deltek products to
provide a fully operational system. Our Enterprise Planner product is licensed
from Adaytum Software and is closely interfaced with Deltek Costpoint and
Deltek GCS Premier. Deltek Employee Expense utilizes software from Necho
Systems Corporation. Deltek Costpoint 4i utilizes development and deployment
software from BEA Systems, Inc. and Actuate Software Corporation to achieve the
Web-enabled and Web reporting components of this most recent version. Our
enterprise-based e-business applications for Employee Self Service and
eProcurement are based on applications from Workscape Software Corporations and
E-Plus Corporation, respectively.

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Customer Service and Support

An integral part of our solution is to provide superior services and
support directly to our customers. These services include comprehensive
implementation and consulting, training and ongoing support. We believe that
our reputation for providing high quality services and our ability to work
directly with our customers, rather than through third-party resellers and
system implementers, are significant competitive advantages.

Implementation and Consulting Services. We typically provide a full range
of consulting and technical services to customers both during and after
implementation of Deltek software. Our system consultants are involved in the
important early planning and design stages of an implementation, participate in
user training, and work closely with the customer during the 2- to 12-month
period just before and after the going live date. After the implementation is
completed, our consultants typically maintain an ongoing relationship with the
customer and assist the customer in refining their systems and adding
functionality as their business grows and requirements change. Our
implementation and consulting services are generally charged on a time and
materials basis.

Ongoing Support Services. We provide comprehensive telephone support
during business hours as well as supplemental emergency support after hours and
on weekends. During the second quarter of 2002, we expect to begin to provide
24-hour support for our customers in international locations around the globe.
We utilize a sophisticated in-house support tracking system that enables call,
problem and resolution tracking. We also maintain an open phone policy
whereby customers are encouraged to contact any supervisor or senior manager at
Deltek for any reason. We normally handle between 300 and 500 support calls per
day. We provide periodic updates and enhancements to each of our software
products. Typically, we provide several minor updates per year, which include
system error corrections, tax table updates and other minor enhancements, and
new version releases periodically, which include major enhancements and changes
to the database design. Telephone support and periodic product enhancements and
updates are provided for maintenance fees that are payable quarterly and
initially represent, on an annual basis, between 15% and 20% of the related
software license fee.

Training Services. Our training facilities are located at our headquarters
and at our offices in Cambridge, Massachusetts and Tigard, Oregon where we
provide regularly scheduled training classes on approximately 40 topics related
to our products. We maintain system laboratories at our training facilities,
which are available for customer testing, benchmarking and troubleshooting. We
also offer custom, on-site training classes. Training is billed hourly or on a
per class basis.

Customers

Since inception, we have licensed our products to over 8,000
project-oriented organizations, predominantly in the United States, across a
spectrum of industries. Project-oriented industries that we currently serve
include IT services and consulting, architectural, engineering, environmental,
systems integration, research and development, contract services

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and construction, as well as make-to-order manufacturers and not-for-profit
organizations. Many project-oriented businesses within these industries provide
products and services under government contracts. No customer accounted for
more than 10% of the Companys total revenues in 1999, 2000, or 2001.

Sales and Marketing

We sell our products and services primarily through our direct sales
force. As of December 31, 2001, we employed approximately 50 full-time sales
and account management personnel and 20 full-time marketing personnel
throughout our company.

Our sales cycle begins with the generation of a sales lead or the receipt
of a request for proposal. Sales leads are generated by direct mailing to
potential customers in selected markets, as well as through advertising,
seminars and trade shows. Our sales personnel work closely with prospective
customers to understand their reasons for undertaking a system change and to
identify their specific business and system requirements. Increasingly, we
target project managers in addition to accounting managers. When the
prospective customer is ready for a product demonstration, we utilize specially
trained and industry-experienced professionals to provide the product
presentation. We provide prospective customers with information to explain the
capabilities and benefits of our products and to assist in planning for the
system implementation. The licensing and implementation of our business
software products is often a decision with significant enterprise-wide
implications involving a substantial commitment of the customers management
attention and resources. The period between initial customer contact and the
customers purchase commitment typically ranges from three to 18 months.
Accordingly, our sales process is subject to delays associated with a lengthy
evaluation and approval process, including delays over which we have little or
no control.

Our strategy is to expand our sales and marketing activities by targeting
organizations in additional project-oriented and professional services
industries, in both domestic and international markets. Additionally, a
significant source of business for us is migrating existing customers to other
systems. In support of our marketing efforts for existing customers, we conduct
ongoing customer communications programs and an annual user conference. We
also plan to expand our international opportunities by utilizing resellers and
other partnering relationships.

Product Development

Our product development is generally organized into teams of developers
who handle a particular product area, a group of programs or functions, or a
new development area. Each development team includes subject matter experts who
are instrumental in the design of each new module and capability. Following the
completion of high-level design, the development team receives assistance from
our database design team, which helps with the important step of designing, or
making changes to the relational database architecture. Throughout the
development process, and particularly when the initial programming has been
completed, quality assurance team members provide testing and analysis to
ensure that the application has been developed using standards and functions
appropriate to its design and purpose. Our product

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architecture group supports many of our product development groups and focuses
on development, enhancement and maintenance of the object-oriented product
development tools used throughout the development process. We utilize a
sophisticated in-house system for tracking the development process, program
check-in and check-out, version control and system error and bug tracking.

Each of our software products is built with the use of sophisticated
development tools. Our Deltek Costpoint product line is developed using a
number of development tools including J2EE based java development and
Enterprise JavaBeans technology and Centura SQLWindows and Team Developer. Our
Costpoint system optimizes the use of database-specific stored procedures,
which enable specific applications to operate much faster with considerably
less network traffic. C and C++ programming is also used throughout Deltek
Costpoint in various situations to improve performance and functionality. Using
the above development tools, we have developed a number of reusable objects and
classes to better facilitate development.

To continue to provide innovative solutions to our customers and to
position ourselves for long-term growth, Deltek is continuing to pursue two
major development initiatives: 1) Web-based development of the Deltek Costpoint
application suite for advanced project-oriented businesses; and 2) development
of Deltek Vision, a new, web-based professional services automation (PSA)
product suite for professional services firms encompassing and integrating a
complete, end-to-end set of business applications

Deltek Costpoint for the Web.A major milestone in the strategy for
targeting Delteks high-end, project-oriented market was the recent
introduction of Deltek Costpoint 4i. This release has provided a number of
mission-critical applications on a browser-based, n-tier architecture being
developed for the Web using Java and Enterprise JavaBeans technology. The
Deltek Costpoint client/server product already encompasses over 25 modular
applications in project accounting, finance, human resources and materials
management. With Deltek Costpoint 4i, customers are able to perform many back
office functions directly over the Internet. The applications have a zero
footprint on the client PC, giving IT managers tremendous flexibility in
deploying these functions across their enterprise. With Costpoint Version 4i,
processing programs and reports are available from any Internet connection,
along with dozens of input screens relating to key business practices such as
project setup, employee setup, vendor and payables processing, cash receipts
and journal entries.

Deltek Vision.Delteks Vision development effort began in August of 2000
and is targeted at the needs of professional services firms. Using 100% pure
Web technology based on the Microsoft COM+ architecture, we are developing a
completely new, end-to-end suite of business applications for professional
services organizations. Within one integrated, browser-based application
suite, this new system is intended to automate accounting, billing, employee
time and expense, CRM, proposals, resource planning, and human resources and
payroll. Deltek plans to deliver beta releases of this new application suite
in the 2nd quarter of 2002, with general release planned for the 3rd quarter of
2002.

In addition to the above development efforts, our product development
groups are continually focused on enhancements and customary error corrections
to existing versions, and

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development of future versions of Deltek Costpoint, Deltek Advantage,
Deltek GCS Premier, Deltek Semaphore, Deltek Time Collection, Deltek CRM and
Proposal, and Deltek Enterprise Planner.

Our software development expenses, exclusive of certain development costs
which have been capitalized, were $16.7 million, $17.7 million, and $19.6
million in 1999, 2000, and 2001, respectively. As of December 31, 2001, we had
246 employees engaged in product development and quality assurance activities,
including 22 employees at our development office in Makati, the Philippines.

Competition

The market for enterprise application software is highly competitive and
rapidly changing. Our products are targeted toward a wide range of
project-oriented organizations, and the competition that we encounter varies
depending upon the customers size, industry and specific system requirements.
For larger implementations of our enterprise-wide products, our principal
competitors include Oracle, PeopleSoft, Inc., J.D. Edwards, and Lawson
Software. For smaller implementations of our enterprise-wide products, our
competitors include Microsoft/Great Plains Software, BST Consultants,
Timberline Software Corporation, and some others that offer industry-specific
products. Deltek Time Collection competes with electronic timekeeping systems
offered by vendors including Kronos, Automatic Data Processing, Inc. and
Oracle. Our front-office applications face competition from well-known
companies such as Siebel Systems, Inc. and Goldmine Software Corporation. We
also face indirect competition from the internal MIS departments of our
potential customers.

We believe that competition in the rapidly evolving markets for business
application software is based primarily on product features and functions,
product architecture, ease of implementation, vendor and product name
recognition and reputation, customer service and support, and price. We believe
that we have competed effectively to date by developing products and services
that meet the unique needs of project-oriented organizations. We also believe
that our reputation for high quality service and support, our ability to work
directly with our customers and our ability to provide rapid implementations
have constituted competitive advantages.

The front-office systems market faces competition from customers internal
information technology departments, systems integrators, as well as from other
application software providers that offer a variety of products and services to
address this market. Many of our customers and potential customers have
attempted to develop front office systems in-house, either alone or with the
help of systems integrators. We may not be able to compete successfully in this
market.

Many of our competitors have significantly greater financial, technical,
marketing and other resources than Deltek. As our larger competitors, such as
Oracle and Peoplesoft, begin to experience a deceleration in their core
business and refocus their marketing and sales efforts to the middle market in
which we actively market our products, we expect such competitors to implement
increasingly aggressive pricing programs. In addition, certain competitors,

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particularly Microsoft, Oracle, PeopleSoft, and Siebel, have well-established
relationships with many of our current and prospective customers and with major
accounting and consulting firms that may have an incentive to recommend such
competitors over us. Moreover, as we attempt to penetrate other strategic
vertical and PSA markets, we will likely encounter competitors with
substantially more experience in those markets.

We believe we have a distinct advantage over competitors in the PSA market with
our new, integrated solution, Deltek Vision. Competitors in the PSA market
include Niku, Novient, Changepoint, and Evolve. Recently, analysts have
started to recognize that these other solutions are front office PSA while
Deltek offers a much broader and more robust offering that automates all of the
core business processes within an organization, including the back office.

Employees

As of December 31, 2001, we had 636 full-time employees, including 246
employees primarily engaged in product development and quality assurance, 161
in customer support and training activities, 117 in consulting and account
management, 70 in sales and marketing, and 42 in finance and administration.
None of our employees are represented by a labor union or are subject to a
collective bargaining agreement.







ITEM 2. PROPERTIES

Corporate headquarters, the principal administrative, product development,
sales and marketing operations and the principal customer training center are
located in 85,000 square feet of office space in a building in McLean,
Virginia, which the Company occupies under leases expiring in March 2002. We
have negotiated a new 10 year lease for our corporate headquarters in Herndon,
Virginia. The new space is for approximately 98,000 square feet and we will
begin occupancy in March of 2002. Additional space of 4,277 square feet is
leased in Diamond Bar, California. The Company leases approximately 25,000
square feet in Cambridge, Massachusetts under leases expiring in 2003, and
5,162 square feet in St. Louis, Missouri under a lease expiring in
2003. The St. Louis office location is in the process of being downsized and sublet arrangements
are being sought. Approximately 9,800 square feet are leased in Tigard, Oregon
and 2,496 square feet are leased in St. Petersburg, Florida. The office lease
in the United Kingdom of approximately 2,500 square feet expires in 2009 and
the Makati, Phillipines lease of approximately 5,000 square feet expires in
2005. We believe that our existing facilities and offices are adequate to meet
our current needs and that, should it be needed, suitable additional or
alternative space will be available in the future on commercially reasonable
terms. See Notes to Consolidated Financial Statements for information regarding
our obligations under facilities leases.







ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material pending legal proceedings, other than
ordinary and routine litigation incidental to our business.







ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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No matter was submitted to a vote of our shareholders during the fourth
quarter of the fiscal year covered by this report.

PART II







ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since February 25, 1997, the Companys Common Stock has been traded on the
Nasdaq National Market under the symbol DLTK. The high and low per share
sales prices for the Companys Common Stock for each period indicated, as
reported on the Nasdaq National Market, are as follows:

|                             |                |  |       |       |     |  |   |       | 
|---------------------------- | -------------- |  | ----- | ----- | --- |  | - | ----- | 
|                             |                |  | Price
|                             |                |  |      
|                             |                |  | High  |       | Low
|                             |                |  |       |       |    
|Year Ended December 31, 2000 |                |  |       |       |     |  |   |      
|                             | First Quarter  |  | $     | 21.00 |     |  | $ | 12.38 | 
|                             | Second Quarter |  | $     | 15.38 |     |  | $ | 5.88  | 
|                             | Third Quarter  |  | $     | 8.34  |     |  | $ | 5.75  | 
|                             | Fourth Quarter |  | $     | 7.72  |     |  | $ | 3.63  | 
|Year Ended December 31, 2001 |                |  |       |       |     |  |   |      
|                             | First Quarter  |  | $     | 8.06  |     |  | $ | 3.50  | 
|                             | Second Quarter |  | $     | 7.12  |     |  | $ | 3.54  | 
|                             | Third Quarter  |  | $     | 6.32  |     |  | $ | 4.00  | 
|                             | Fourth Quarter |  | $     | 4.95  |     |  | $ | 4.00  | 

On March 12, 2002, the closing price for our Common Stock was $ 6.95 per
share and we had approximately 74 shareholders of record. Management believes
there are approximately 2,700 beneficial holders of our Common Stock and has
been advised that there are 93 individual participants holding approximately
48.6% of the outstanding Common Stock pursuant to security position listings
furnished by Cede & Co., New York, New York, registered clearing agency and
depository.

As a former S Corporation, we made cash distributions to our shareholders,
including in connection with the termination of the Companys S Corporation
status in February 1997. In 1998 we paid $369,000 in such cash distributions to
the S Corporation shareholders. We have not paid further cash dividends and do
not intend to pay cash dividends in the future as we intend to retain all
earnings to support planned growth.







ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the consolidated financial statements and the notes thereto included elsewhere
herein or incorporated herein by reference. The statement of operations data
set forth below with respect to the years ended

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December 31, 1999, 2000, and 2001 and the balance sheet data as of December 31,
2000 and 2001 are derived from, and are qualified by reference to, the audited
financial statements of the Company included elsewhere in this Annual Report.
All amounts for all periods have been restated to reflect the acquisition of
Harper and Shuman in May 1998, which was accounted for using the
pooling-of-interests method of accounting. The unaudited pro forma statement of
operations data set forth below do not purport to be indicative of the results
of operations that would have occurred had the termination of the Companys S
Corporation status occurred at December 31, 1996.

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|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |       |        |        | 
|----------------------------------------------------- | -------------------------------- | -------------------------------------------------- | ------------------------ | ------ | ------------------------------------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ----- | ------ | ------ | 
|                                                      |                                  |                                                    |                          |        | 1997                                 |        | 1998 |        | 1999   |        | 2000 |        | 2001  
|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |       
|                                                      |                                  |                                                    |                          |        | (in thousands except per share data)
|Statement of Operations Data:                         |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|                                                      | Revenues                         |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |       |       
|                                                      |                                  | License fees                                       |                          | $      | 21,043                               |        |      | $      | 28,162 |        |      | $      | 29,836 |        |  | $      | 27,603 |        |  | $     | 23,157 |       
|                                                      |                                  | Services                                           |                          |        | 33,216                               |        |      |        | 50,867 |        |      |        | 65,321 |        |  |        | 67,642 |        |  |       | 67,046 |       
|                                                      |                                  | Third-party equipment and software                 |                          |        | 3,387                                |        |      |        | 4,040  |        |      |        | 3,087  |        |  |        | 3,013  |        |  |       | 2,603  |       
|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|                                                      |                                  |                                                    | Total revenues           |        |                                      | 57,646 |      |        |        | 83,069 |      |        |        | 98,244 |  |        |        | 98,258 |  |       |        | 92,806 | 
|                                                      | Operating expenses               |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |       |       
|                                                      |                                  | Cost of software                                   |                          |        | 2,053                                |        |      |        | 2,491  |        |      |        | 2,583  |        |  |        | 3,134  |        |  |       | 4,010  |       
|                                                      |                                  | Cost of services                                   |                          |        | 14,375                               |        |      |        | 24,763 |        |      |        | 30,849 |        |  |        | 37,295 |        |  |       | 33,503 |       
|                                                      |                                  | Cost of third-party equipment and software         |                          |        | 2,631                                |        |      |        | 3,146  |        |      |        | 2,640  |        |  |        | 2,711  |        |  |       | 2,380  |       
|                                                      |                                  | Software development                               |                          |        | 11,214                               |        |      |        | 15,014 |        |      |        | 16,663 |        |  |        | 17,671 |        |  |       | 19,638 |       
|                                                      |                                  | Sales and marketing                                |                          |        | 6,643                                |        |      |        | 10,353 |        |      |        | 11,592 |        |  |        | 14,174 |        |  |       | 15,547 |       
|                                                      |                                  | General and administrative                         |                          |        | 3,558                                |        |      |        | 4,163  |        |      |        | 5,939  |        |  |        | 8,287  |        |  |       | 8,418  |       
|                                                      |                                  | Amortization of goodwill and purchased
intangibles |                          |        | 26                                   |        |      |        | 687    |        |      |        | 1,051  |        |  |        | 2,505  |        |  |       | 4,053  |       
|                                                      |                                  | Acquisition and offering costs                     |                          |        | 320                                  | (1)    |      |        | 1,475  | (2)    |      |        |       |        |  |        |       |        |  |       |       |       
|                                                      |                                  | Purchased in-process research and development      |                          |        |                                     |        |      |        | 2,500  | (2)    |      |        |       |        |  |        |       |        |  |       |       |       
|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|                                                      |                                  |                                                    | Total operating expenses |        |                                      | 40,820 |      |        |        | 64,592 |      |        |        | 71,317 |  |        |        | 85,777 |  |       |        | 87,549 | 
|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|                                                      | Income from operations           |                                                    |                          | 16,826 |                                      |        |      | 18,477 |        |        |      | 26,927 |        |        |  | 12,481 |        |        |  | 5,257 |       
|                                                      | Interest Income                  |                                                    |                          | 781    |                                      |        |      | 1,066  |        |        |      | 1,166  |        |        |  | 878    |        |        |  | 443   |       
|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|                                                      |                                  | Income before income taxes                         |                          |        | 17,607                               |        |      |        | 19,543 |        |      |        | 28,093 |        |  |        | 13,359 |        |  |       | 5,700  |       
|                                                      | Provision for income taxes       |                                                    |                          | 5,898  |                                      |        |      | 7,788  |        |        |      | 10,881 |        |        |  | 5,660  |        |        |  | 3,223 |       
|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|                                                      |                                  | Net income                                         |                          | $      | 11,709                               |        |      | $      | 11,755 |        |      | $      | 17,212 |        |  | $      | 7,699  |        |  | $     | 2,477  |       
|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|                                                      |                                  | Diluted net income per share                       |                          |        |                                      |        |      | $      | 0.64   |        |      | $      | 0.97   |        |  | $      | 0.47   |        |  | $     | 0.16   |       
|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|                                                      |                                  | Weighted average shares, diluted                   |                          |        |                                      |        |      |        | 18,235 |        |      |        | 17,732 |        |  |        | 16,505 |        |  |       | 15,279 |       
|                                                      |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|Pro Forma Statement of Operations Data
(Unaudited)(3) |                                  |                                                    |                          |        |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |      
|                                                      | Provision for income taxes       |                                                    | $                        | 6,780  |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |       |       
|                                                      | Net income                       |                                                    |                          | 10,827 |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |       |       
|                                                      | Diluted net income per share     |                                                    | $                        | 0.61   |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |       |       
|                                                      | Weighted average shares, diluted |                                                    |                          | 17,882 |                                      |        |      |        |        |        |      |        |        |        |  |        |        |        |  |       |       

|                                                 |  |              |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------ |  | ------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                 |  | December 31,
|Balance Sheet Data                               |  | 1997         |        | 1998 |  | 1999 |        | 2000 |  | 2001
|Cash, cash equivalents and marketable securities |  | $            | 25,832 |      |  | $    | 33,376 |      |  | $    | 29,245 |  |  | $ | 14,156 |  |  | $ | 30,383 | 
|Working capital                                  |  |              | 20,132 |      |  |      | 29,662 |      |  |      | 32,174 |  |  |   | 15,966 |  |  |   | 25,132 | 
|Total assets                                     |  |              | 40,571 |      |  |      | 60,711 |      |  |      | 62,435 |  |  |   | 64,161 |  |  |   | 72,534 | 
|Total shareholders equity                       |  |              | 25,814 |      |  |      | 41,406 |      |  |      | 47,242 |  |  |   | 45,231 |  |  |   | 48,378 | 



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following information should be read in conjunction with the financial
statements and the notes thereto included elsewhere herein. Except for
historical information, certain statements in this Managements Discussion and
Analysis of Financial Condition and Results of Operations are forward-looking.
These forward-looking statements are subject to various risks and
uncertainties, including the demand for products, the size and timing of
specific sales, the level of product and price competition, the length of sales
cycles, economic conditions, and the Companys ability to develop and market
new products and control costs. The Company undertakes no obligation and does
not intend to update, revise or otherwise publicly release the result of any
revisions to these forward-looking statements that may be made to reflect
future events or circumstances.

Overview

Deltek is a leading provider of enterprise software products that enable
project-oriented organizations and professional service firms to more
effectively manage, operate and grow their operations. From 1985 through 1994,
without considering revenues from the Companys 1998 acquisition of Harper and
Shuman, substantially all of the Companys revenues were derived from licenses
of its System1 business software, designed primarily for organizations
providing products or services under contracts with the federal government, and
services related to System1. In 1992, the Company began development of Deltek
Costpoint, an advanced client/ server-based, enterprise-wide business software
system, which was commercially released in June 1995 and which represented
approximately 30.7% of the Companys license fees for the year ended December
31, 2001. The primary software product suites that we currently market consist
of Deltek Costpoint, an advanced client/ server-based business software system
designed for all types of complex project-oriented organizations; Deltek
Advantage, an integrated, project-focused accounting system designed for
professional services firms; Deltek GCS Premier, project accounting software
for small-to mid-sized organizations providing products or services under
contracts with the federal government; Deltek Vision, a PSA application suite
intended to automate accounting, billing, employee time and expense, CRM,
proposals, resource planning and scheduling, human resources, knowledge
management, and project e-business; Deltek CRM and Deltek Proposals, a
front-office customer relationship management solution for professional service
environments; and Deltek Time Collection (formerly ET Enterprise), an advanced
employee timekeeping system.

The Companys revenues consist of fees derived from the licensing of its
software products, service revenues from consulting and other services, and
revenues from the resale of third-party equipment and the sublicensing of
third-party software. The Company derives substantially greater profit margins
from license fees than from service revenues or third-party equipment and
software revenues. The mix of revenues can fluctuate from quarter to quarter,
and such fluctuations can have a material effect on margins. Over the past five
years, the percentage of the Companys total revenues represented by service
including consulting and maintenance has increased, and the Company anticipates
that it will continue to do so due to an increasing maintenance base.

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In April 2000, Deltek acquired substantially all assets of A/E Management
Services, Inc., including its complete suite of RFP Proposal automation and
tracking software, for the cash purchase price of $3.5 million. Net assets
acquired were nominal and the entire purchase price was allocated to purchased
intangibles and goodwill. These intangibles are being amortized over five
years. A/E Managements RFP front-office automation solution is designed to
help the architecture, engineering, construction, and other professional
services organizations win more contracts by automating the process of
collecting, updating, researching and retrieving data critical to achieving
marketing and proposal automation success.

In August 2000, the Company acquired all of the outstanding stock of
Semaphore, Inc. for a purchase price of approximately $10 million in cash and
$0.8 million of non-cash consideration. Semaphore, Inc. provides advanced
financial and project management software and services for architecture,
engineering, construction, and other professional services firms. Approximately
$10.5 million of the purchase price was allocated to purchased intangibles and
goodwill. These intangibles and goodwill are being amortized over five years.
The Company also allocated $1.2 million to deferred tax assets, $1.2 million to
accounts receivable and $2.1 million to liabilities. These intangibles and
goodwill are being amortized over five years. See Notes to Consolidated
Financial Statements regarding pro forma information that might have been
achieved if these transactions had been in effect since the beginning of 1999.

These acquisitions were accounted for under the purchase method; their
results have been included in the Companys operations since their respective
acquisition dates.

Critical Accounting Policies

The Company considers certain accounting policies related to revenue
recognition and software development costs to be critical policies due to the
complexity and estimation processes in each.

Revenue Recognition

The Company recognizes software revenue in accordance with Statement of
Position 97-2 Software Revenue Recognition, and Statement of Position 98-9
Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions.

The Company grants perpetual licenses under a standard license agreement.
For certain of its software products, the Company had granted its customers a
right of return for a full or partial refund of the license fee during a refund
period which was generally 60 to 90 days from the date of the initial software
delivery. Beginning in the second half of 2000, the Company limited the right
of refund to a material defect only for the majority of its Costpoint sales.
With this change, the Company generally recognizes revenue of Costpoint sales
upon delivery or if a right of return exists, upon the expiration of that
right. Due to the decline in Costpoint sales, the impact on revenue was not
significant for 2000. The Company generally recognizes license fees from its
other software products upon delivery.

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Revenues recognized from multiple-element software arrangements are
allocated to each element of the arrangement based on the fair values of the
elements. The fair value of professional services, technical support and
training have been determined based on the Companys specific objective
evidence of fair value based on the price charged when the elements are sold
separately. License revenues are recorded under the residual method described
in SOP 98-9 for arrangements in which licenses are sold with these elements.
However, the entire fee related to arrangements that require the Company to
deliver specified additional upgrades is deferred until delivery of the
specified upgrade has occurred, unless the Company has vendor-specific
objective evidence of fair value for the upgrade. Also, the entire fee is
deferred for arrangements that require the Company to deliver future specified
products in which vendor-specific objective evidence of fair value is not yet
available. Fees related to contracts that require the Company to deliver
unspecified additional products are deferred and recognized ratably over the
contract term.

For contracts that involve significant installment payments, the Company
also evaluates whether fees are fixed and determinable. If the fees are not
fixed and determinable, the Company defers the recognition of revenue until the
payments become due. For contracts with significant customization, the Company
recognizes revenue based on percentage of completion.

Implementation and other consulting services are provided on a time and
materials basis billed monthly and recognized as the services are performed.
Revenues on time and materials contracts are recognized based on hours actually
incurred at the contract billing rates plus out of pocket expenses. Disputes
may arise in the normal course of business on implementation projects with
customers for collection of funds because of events such as delays and changes
in contract specifications. Such claims by the Company are recorded as revenue
only when realization is probable and can be reliably estimated. Prepaid
consulting is recorded as deferred revenue.

Telephone support and periodic enhancements and updates are provided for
maintenance fees that are payable quarterly and initially represent between 15
percent and 20 percent of the related software license fee on an annual basis.
Customers generally prepay for maintenance on a quarterly basis. These
prepayments are recorded as deferred revenue until earned. Revenue from
quarterly maintenance and support service is recognized over the term of the
support agreement.

Revenue from third-party equipment and software is derived from the resale
and sublicensing of third-party hardware and software products in connection
with the license and installation of the Companys systems and is generally
recognized upon delivery.

Software Development Costs

Software development costs for products are capitalized subsequent to the
establishment of technological feasibility, as evidenced by detailed program
designs or by a working model. Capitalization ceases when the products are
available for general release to customers, at which

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time amortization of the capitalized costs begins on a straight-line basis
over the estimated lives of the products, which are generally five years. On a
periodic basis the Company reviews it capitalized development costs to
determine whether the carrying amount of the asset is fully recoverable. The
Company capitalized software development costs of approximately $3,031,000,
$2,234,000 and $1,237,000 during 1999, 2000 and 2001, respectively.
Amortization expense of approximately $927,000, $1,044,000, and $1,357,000 was
recorded related to these costs during 1999, 2000, and 2001, respectively, and
is included in cost of software.

Goodwill and Purchased Intangibles

The Company periodically evaluates goodwill and purchased intangibles for
potential impairment indicators. The Companys judgments regarding the
existence of impairment indicators are based on market conditions, legal
factors and operational performance of the acquired businesses. Future events
could cause the Company to conclude that impairment indicators exist and that
goodwill and purchased intangibles are impaired. Any resulting impairment loss
could have a material adverse impact on our financial position and results of
operations.

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Results of Operations

The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company expressed
as a percentage of total revenues, and the percentage change in such items
compared to the same period in the prior year.

|                           |                              |                                                    |                          |   |                              |       |      |   |      |       |     |   |      |       | 
|-------------------------- | ---------------------------- | -------------------------------------------------- | ------------------------ | - | ---------------------------- | ----- | ---- | - | ---- | ----- | --- | - | ---- | ----- | 
|                           |                              |                                                    |                          |   | Percentage of Total Revenues
|                           |                              |                                                    |                          |   | Year Ended December 31,     
|                           |                              |                                                    |                          |   |                             
|                           |                              |                                                    |                          |   | 1999                         |       | 2000 |   | 2001
|                           | Statement of Operations Data |                                                    |                          |   |                              |       |      |   |      |       |     |   |     
|                           | Revenues:                    |                                                    |                          |   |                              |       |      |   |      |       |     |   |     
|                           |                              | License Fees                                       |                          |   | 30.4                         | %     |      |   | 28.1 | %     |     |   | 25.0 | %    
|                           |                              | Services                                           |                          |   | 66.5                         |       |      |   | 68.8 |       |     |   | 72.2 |      
|                           |                              | Third-party equipment and software                 |                          |   | 3.1                          |       |      |   | 3.1  |       |     |   | 2.8  |      
|                           |                              |                                                    |                          |   |                              |       |      |   |      |       |     |  
|                           |                              |                                                    | Total revenues           |   |                              | 100.0 |      |   |      | 100.0 |     |   |      | 100.0 | 
|                           | Operating expenses           |                                                    |                          |   |                              |       |      |   |      |       |     |   |     
|                           |                              | Cost of software                                   |                          |   | 2.6                          |       |      |   | 3.2  |       |     |   | 4.3  |      
|                           |                              | Cost of services                                   |                          |   | 31.4                         |       |      |   | 38.0 |       |     |   | 36.1 |      
|                           |                              | Cost of third-party equipment and software         |                          |   | 2.7                          |       |      |   | 2.8  |       |     |   | 2.6  |      
|                           |                              | Software development                               |                          |   | 17.0                         |       |      |   | 18.0 |       |     |   | 21.1 |      
|                           |                              | Sales and marketing                                |                          |   | 11.8                         |       |      |   | 14.4 |       |     |   | 16.7 |      
|                           |                              | General and administrative                         |                          |   | 6.0                          |       |      |   | 8.4  |       |     |   | 9.1  |      
|                           |                              | Amortization of goodwill and purchased
intangibles |                          |   | 1.1                          |       |      |   | 2.5  |       |     |   | 4.4  |      
|                           |                              |                                                    |                          |   |                              |       |      |   |      |       |     |  
|                           |                              |                                                    | Total operating expenses |   |                              | 72.6  |      |   |      | 87.3  |     |   |      | 94.3  | 
|                           |                              |                                                    |                          |   |                              |       |      |   |      |       |     |  
|Income from operations     |                              |                                                    | 27.4                     |   |                              |       | 12.7 |   |      |       | 5.7 |  
|Interest income            |                              |                                                    | 1.2                      |   |                              |       | 0.9  |   |      |       | 0.5 |  
|                           |                              |                                                    |                          |   |                              |       |      |   |      |       |     |  
|Income before income taxes |                              |                                                    | 28.6                     |   |                              |       | 13.6 |   |      |       | 6.2 |  
|Provision for income taxes |                              |                                                    | 11.1                     |   |                              |       | 5.8  |   |      |       | 3.5 |  
|                           |                              |                                                    |                          |   |                              |       |      |   |      |       |     |  
|Net income                 |                              |                                                    | 17.5                     | % |                              |       | 7.8  | % |      |       | 2.7 | %
|                           |                              |                                                    |                          |   |                              |       |      |   |      |       |     |  

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Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

License Fees.License fees for the year ended December 31, 2001 decreased
by 15.9% to $23.2 million from $27.6 million for the same period in 2000.
The decrease in license fees was attributable to Deltek Costpoint and Deltek
GCS/System1 license fees, which decreased from $10.2 million and
$5.6 million, respectively, at December 31, 2000 to
$7.1 million and $2.6 million, respectively, for the year ended December 31, 2001. This represents a 30.4%
decrease for Deltek Costpoint and a 53.6% for Deltek GCS/System1 over fiscal
year 2000 results. Although total software license orders were approximately
consistent with 2000 levels, a greater percentage of the 2001 transactions were
deferred at year-end due to more contracts containing extended payment terms or
commitments to deliver additional products. License fees from Deltek CRM and
Proposals increased from $1.1 million to $2.0 million for the year ended
December 31, 2001, an increase of 81.8%. Deltek Advantage license sales
increased by 4.5% from $4.4 million compared to $4.6 million for the year ended
December 31, 2001. Deltek Time Collection license fees decreased from $4.2
million to $3.8 million in revenues, a decrease of 9.5% for the year ended
December 31, 2001. Deltek Enterprise Planner produced $940,000 for the year
ended December 31, 2001 compared to $220,000 for the year ended December 31,
2000, an increase of 327.3%. Semaphore license fees increased by 260.0%, from
$0.5 million to $1.8 million. It should be noted that Deltek Enterprise
Planner was introduced to our product line for the first time during fiscal
year 2000 and that Semaphores operations were only included in Delteks
revenue figures for the last five months of fiscal year 2000. As a result, the
resulting year-to-year growth rates are not necessarily indicative of future
performance.

Services. Service revenues for the year ended December 31, 2001 decreased
slightly, from $67.6 million to $67.0 million, a decrease of 0.9% from the same
period in 2000 attributable principally to offsetting increases in maintenance
and support plan services revenue for all product lines and decreases in
consulting service revenue for mainly large scale Deltek Costpoint
implementations. Maintenance and support plan services revenue increased by
18.3% to $44.0 million for the year ended December 31, 2001 from $37.2 million
for the same period in the prior year. The increase in maintenance service
revenues was principally attributable to the maintenance revenues associated
with the acquisition of A/E Management, Inc. and Semaphore, Inc. in April and
August of 2000, respectively. Consulting service revenues decreased by 24.3%
to $23.0 million for the year ended December 31, 2001 compared to $30.4 million
for fiscal year 2000 due to fewer large scale Costpoint implementations during
the year ended December 31, 2001. Services revenue comprised 72.2% of the
Companys total revenue for the year ended December 31, 2001, compared to 68.8%
for the same period in 2000.

Third-Party Equipment and Software. Revenues from third-party equipment
and software for the year ended December 31, 2001 decreased by 13.3% to $2.6
million from $3.0 million for the comparable period in 2000. These revenues
comprised 2.8% and 3.1% of total revenues for 2001 and 2000 respectively.

Cost of Software. Cost of software is comprised primarily of royalties and
maintenance payments to third parties, amortization of software development
costs, and the cost of production and distribution of software and user
manuals. Cost of software for the year ended December 31, 2001 was $4.0
million, an increase of 29.0% from $3.1 million for the same period in 2000.
The

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increase was due to royalty expenses associated with the introduction of new
third party products into our product mix. In addition, amortization expense
related to new products also increased. This is due to the release of new
products in the first quarter of 2000 and the associated full 12 months of
amortization expense recognized in 2001. Royalties associated with certain
software products currently under development by joint business arrangements
and charges associated with software products and technologies acquired from
various third party vendors may cause the cost of software license fees as a
percentage of software license fees revenue to increase in future periods.

Cost of Services. Cost of services is comprised primarily of personnel
costs for implementation and consulting services, user training, user
conferences and ongoing maintenance and support. Cost of services for the year
ended December 31, 2001 decreased by 10.2% to $33.5 million, from $37.3 million
for 2000. The cost of services gross margin as a percentage of service revenue
was 50.0% for the year ended December 31, 2001, an increase from 44.9% for the
prior year primarily due to an increase in maintenance and support plan service
revenue during 2001.

Cost of Third-Party Equipment and Software.Cost of third-party equipment
and software consists of the costs of computer and peripheral equipment and
license fees and royalties for third-party software. Cost of third-party
equipment and software decreased by 11.1% to $2.4 million for the year ended
December 31, 2001 compared to $2.7 million for 2000. Costs increased as a
percentage of related revenue to 91.4% for the year ended December 31, 2001
compared to 90.0% for 2000. The increase in these costs as a percentage of
related revenues was the result of reduced mark-ups on third party equipment
sales.

Software Development.Software development costs consist primarily of the
personnel costs of analysts and programmers who research, develop, maintain and
enhance the Companys existing software product lines and develop new products.
Software development costs for the year ended December 31, 2001 were $19.6
million, an increase of 10.7% from 2000 due primarily increased web development
efforts for Costpoint 4i, the ongoing development of our Vision product, and a
reduction in capitalized costs for software development due to the stage of
software projects that entered general release or are not yet technologically
feasible to be considered a capitalized cost. Software development costs
represented 21.1% and 18.0% of total revenues for the year ended December 31,
2001 and 2000, respectively.

Sales and Marketing.Sales and marketing expenses consist primarily of
the costs of the Companys sales and marketing personnel as well as the costs
of advertising, direct mail and other sales and marketing activities. Sales
and marketing expenses for the year ended December 31, 2001 increased to $15.5
million compared with $14.2 million for the same period in 2000. Sales and
marketing expenses represented 16.7% and 14.4% of the Companys total revenues
for the comparable twelve months of 2001 and 2000, respectively.

General and Administrative.General and administrative expenses consist
primarily of the personnel costs of the Companys management, administrative
and finance staffs as well as the costs of insurance programs, bad debt
expenses, professional fees and other infrastructure costs. General and
administrative expenses for the year ended December 31, 2001 increased by

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1.2% to $8.4 million from $8.3 million for the same period in 2000. This
increase is largely attributed to increased severance costs of $610,000 for the
year ended December 31, 2001 compared with severance costs of $400,000 for the
year ended December 31, 2000. General and administrative expenses represented
9.1% of the Companys total revenue for the year ended December 31, 2001,
compared to 8.4% for the year ended December 31, 2000.

Amortization of Goodwill and Purchased Intangibles. Amortization expense
of $4.1 million and $2.5 million for the years ended December 31, 2001 and
December 31, 2000, respectively. This increase was related to acquisitions of
A/E Management, Inc. and Semaphore, Inc., in April 2000 and August 2000,
respectively.

Interest Income.Interest income declined to $443,000 for the year ended
December 31, 2001, a decrease of 49.5% from $878,000 for 2000 attributed to a
decline in average invested funds used for acquisitions and share repurchases
and declining rates of return on investments.

Income Tax Provision.The Companys effective tax rate for the year ended
December 31, 2001 was 56.5% compared with 42.4% for 2000. The increase in the
effective tax rate is primarily due to the amortization of goodwill associated
with the Semaphore acquisition, which is not deductible for income tax
purposes. This substantial permanent tax difference, compounded by declining
revenues, caused a dramatic increase in the effective tax rate for 2001.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

License Fees. License fees for the year ended December 31, 2000 decreased
by 7.4% to $27.6 million from $29.8 million for the same period in 1999. The
decrease in license fees was attributable to Deltek Costpoint and Deltek
Advantage license fees, which decreased by 28.8% and 34.0% to $10.2 and $4.4
million, respectively, for the year ended December 31, 2000. License fees from
GCS/System1 products were $5.6 million for the year ended December 31, 2000
compared to $2.5 million for the year ended December 31, 1999, an increase of
124.0%. Deltek CRM and Proposals, Enterprise Planner and Semaphore licenses
were new products for the year ended December 31, 2000 and license fees were
$1.1 million, $220,000 and $482,000 respectively. We believe that the decline
of Deltek Costpoint license fees was due to the saturation of the back office
market in the industries served by the Company as compared to 1999. The lack of
a true web based architecture for our back office systems also hindered our
sales in markets where such technology is in high demand. License fees
comprised 28.1% of the Companys total revenues for 2000, compared to 30.4% for
1999.

Services. Service revenues for the year ended December 31, 2000 increased
by 3.5% to $67.6 million from $65.3 million for the same period in 1999.
Maintenance service revenues increased by 11.4% to $37.2 million for the year
ended December 31, 2000 from $33.4 million for the same period in the prior
year. The increase in maintenance service revenues was principally attributable
to increased maintenance services related to the acquisition of A/E Management,
Inc. and Semaphore Inc. as well as normal contractual maintenance escalations
for other products. Consulting service revenues decreased by 4.9% to $30.4
million for the year ended December 31, 2000 from $31.9 million for the same
period in 1999. Service revenues

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comprised 68.8% of the Companys total revenues for 2000, compared to 66.5% for
the same period in 1999.

Third-Party Equipment and Software. Revenues from third-party equipment
and software for the year ended December 31, 2000 decreased by 3.2% to $3.0
million from $3.1 million for the comparable period in 1999. These revenues
comprised 3.1% of total revenues for 2000 and 1999.

Cost of Software. Cost of software is comprised primarily of royalties and
maintenance payments to third parties, amortization of software development
costs, and the cost of production and distribution of software and user
manuals. Cost of software for the year ended December 31, 2000 was $3.1
million, an increase of 19.2% from $2.6 million for the same period in 1999.
This change was due to an increase in labor, the purchase of additional
software development tools and an increase in royalty fees paid.

Cost of Services. Cost of services is comprised primarily of personnel
costs for implementation and consulting services, user training, user
conferences and ongoing maintenance and support. Cost of services for the year
ended December 31, 2000 increased by 20.7% to $37.3 million from $30.9 million
for the same period in 1999. The increase in cost of services was primarily due
to increases in services personnel salary expense and related fringe benefit
costs. Cost of services represented 55.1% and 47.2% of service revenues for the
year ended December 31, 2000 and 1999, respectively. The increase in cost of
services as a percentage of service revenues was due to a decrease in
consulting revenues and an increase in base salary labor expense as well as
increase in indirect, non-billable travel expenses. Exclusive of the users
conference and reimbursable travel expenses, which are billed at cost, cost of
services represented 48.0% and 37.2% of related service revenue for the years
ended December 31, 2000 and 1999, respectively.

Cost of Third-Party Equipment and Software. Cost of third-party equipment
and software consists of the costs of computer and peripheral equipment and
license fees and royalties for third-party software. Cost of third-party
equipment and software for the year ended December 31, 2000 increased to $2.7
million from $2.6 million for the same period in the prior year. As a
percentage of related revenues, cost of third-party equipment and software
products represented 90.0% and 85.5% for the year ended December 31, 2000 and
1999, respectively. The increase in these costs as a percentage of related
revenues was the result of reduced mark-ups on third party equipment sales.

Software Development. Software development costs consist primarily of the
personnel costs of analysts and programmers who research, develop, maintain and
enhance the Companys existing software product lines and develop new products.
Software development costs for the year ended December 31, 2000 increased by
6.0% to $17.7 million from $16.7 million for the same period in 1999. This
increase was due primarily to increases in subcontractor costs for the
development of Deltek CRM and Proposals and the increased base salary expense
to maintain or acquire development personnel. Software development costs
represented 18.0% and 17.0% of total revenues for the year ended December 31,
2000 and 1999, respectively.

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Sales and Marketing. Sales and marketing expenses consist primarily of the
costs of the Companys sales and marketing personnel as well as the costs of
advertising, direct mail and other sales and marketing activities. Sales and
marketing expenses for the year ended December 31, 2000 increased by 22.4% to
$14.2 million from $11.6 million for the same period in 1999. Primary reasons
for the increase are higher base salary and compensation plans effective in
2000 to maintain and hire qualified staff. Sales and marketing expenses
represented 14.4% of the Companys total revenues for the year ended December
31, 2000, compared to 11.8% for the same period in 1999.

General and Administrative. General and administrative expenses consist
primarily of the personnel costs of the Companys management, administrative
and finance staffs as well as the costs of insurance programs, bad debt
expenses, professional fees and other infrastructure costs. General and
administrative expenses for the year ended December 31, 2000 increased by 40.7%
to $8.3 million from $5.9 million for the same period in 1999. This was due to
an increase in personnel as well as increases in insurance expenses and
professional services. Severance pay for work force reductions and increased
bad debt expenses were also contributors to this years increase. General and
administrative expenses represented 8.4% of the Companys total revenues for
the year ended December 31, 2000, compared to 6.0% for the same period in 1999.

Interest Income. Interest income results from investment and, to a lesser
extent, from installment financing. Interest income for the year ended December
31, 2000 decreased by 26.8% to $878,000 from $1.2 million for the same period
in 1999. This decrease is due to outlays of cash related to the acquisition of
A/E Management, Inc. for $3.5 million, the acquisition of Semaphore for $11.1
million and the fulfillment of the Companys stock repurchase program of 1.6
million shares costing $11.4 million.

Income Tax Provision. The Companys effective tax rate for the year ended
December 31, 2000 was 42.4% as compared to the effective tax rate of 38.7% for
the same period in 1999. The increase in effective rate is due to the
amortization of goodwill associated with the Semaphore acquisition, which is
not deductible for tax purposes.

Liquidity and Capital Resources

The Company has financed its operations almost exclusively from cash flow
from its operations. As of December 31, 2001, the Company had cash and cash
equivalents of $18.9 million, marketable securities of $11.5 million and
working capital of $25.1 million.

For the year ended December 31, 2001, the Companys net cash provided by
operating activities was $18.2 million compared to $15.4 million for December
31, 2000. Accounts receivable, net of the allowance for doubtful accounts,
were $12.3 million as of December 31, 2001, compared to $15.2 million as of
December 31, 2000. Accounts receivable days sales outstanding were 57 days and
62 days as of December 31, 2001, and December 31, 2000, respectively.

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Investing activities utilized $8.8 million for the year ended December 31,
2001. This amount included $6.2 million in sold marketable
securities, $1.4 million in purchased property and equipment and $1.2 million of capitalized
software production costs. Investing activities utilized $1.8 million for
the year ended December 31, 2000. This amount included $18.0 million in sold
marketable securities, $2.8 million in purchased property and
equipment, $14.8 million in acquisitions and $2.2 million in capitalized software production
costs.

Financing activities for the year ended December 31, 2001 consisted
primarily of $148,000 in proceeds from the exercise of stock options and
$411,000 from the issuance of stock under the Companys employee stock purchase
plan. By comparison proceeds from exercise of stock options and issuance of
stock under the purchase plan were $311,000 and $518,000, respectively, for the
year ended December 31, 2000.

In mid-July, the Company reduced its labor force by approximately 50
positions or 8.0% in order to improve margins throughout the organization. The
Company incurred severance expense of approximately $610,000, which was
recognized in the third quarter. Since the severance packages were 8-12 weeks
of pay on average the reduction in labor expense and resulting operating margin
impact did not benefit the financial statements until midway through the fourth
quarter of 2001.

In October 2001, the Company renewed and increased its operating line of
credit. The line was increased from $1.0 million to $5.0 million. The Company
did not have any borrowings on the line of credit as of December 31, 2001. The
Companys bank has issued a letter of credit of $1,030,000 for the new office
space as of December 31, 2001. The line of credit contains certain covenants,
which include provisions specifying compliance with certain quarterly and
annual financial ratios. As of December 31, 2001, management determined that
the Company was in compliance with these financial covenants.

The Board of Directors of the Company has recommended, and the
Companys shareholders will soon be asked to approve, a merger
of the Company with an entity formed by the co-founders of the
Company (the Merger Company). In this merger, shareholders other than
the Merger Company, which will be owned by the co-founders of the
Company, members of their family, and certain employees and other
third parties, will receive cash for their common stock.
If the merger is consummated, the Company will no
longer be a public company. The merger will be financed through existing cash
of the Company, bank financing which is currently being negotiated and loans
from the co-founders. There can be no assurances that the proposed transaction
will be completed or that the Merger Company will obtain financing on terms and
conditions that are acceptable to the Merger Company or that the co-founders
will loan funds to the Merger Company.

The Company believes that its current liquidity, together with anticipated
cash flow from operations, will satisfy the Companys anticipated working
capital and capital expenditure requirements through the foreseeable future.
However, depending on its rate of or decline in growth, profitability and other
factors, some of which are not in the Companys control, the Company believes
additional financing may be required to meet its working capital requirements
or capital expenditure needs, including acquisitions, in the future. The
Company may consider additional appropriate acquisitions should such
opportunities present themselves. There can be

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no assurance that additional financing will be available when required or, if
available, that any such financing will be on terms satisfactory to the
Company.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). The Company adopted this statement
on January 1, 2001. SFAS No. 133 and related amendments establish accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair
value. The Companys adoption of SFAS No. 133 did not materially impact its
financial position or results of operations.

In June 2001, the FASB approved SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
prospectively prohibits the pooling of interest method of accounting for
business combinations initiated after June 30, 2001. SFAS No. 142 requires
companies to cease amortizing existing goodwill on January 1, 2002. SFAS No.
142 also establishes a new method of testing goodwill for impairment on an
annual basis or on an interim basis if an event occurs or circumstances change
that would reduce the fair value of a reporting unit below its carrying value.
The adoption of SFAS No. 142 will result in the Companys discontinuation of
amortization of its goodwill; however, the Company will be required to test its
goodwill for impairment under the new standard effective January 1, 2002. As of
December 31, 2001, the Company had goodwill, net of accumulated amortization,
of approximately $10.0 million that will be subject to the provisions of SFAS
No. 142. The Companys results of operations for the twelve months ended
December 31, 2001 included approximately $3.3 million of goodwill amortization
expense that under SFAS No. 142 would not have been required. The Company is
currently reviewing the provisions of these new pronouncements and their impact
on the consolidated financial statements, which could have an adverse effect on
the Companys future results of operations if an impairment occurs.

In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The purpose of this statement is to
develop consistent accounting for asset retirement obligations and related
costs in the financial statements and provide more information about future
cash outflows, leverage and liquidity regarding retirement obligations and the
gross investment in long-lived assets. This statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company will be required to implement SFAS No. 143 on January 1, 2003, and is
currently reviewing the provisions of the pronouncement and its impact on the
consolidated financial statements.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets, which supersedes SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of. Though it retains the basic requirements of SFAS 121
regarding when and how to measure an impairment

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loss, SFAS 144 provides additional implementation guidance. SFAS 144 applies to
long-lived assets to be held and used or to be disposed of, including assets
under capital leases of lessees; assets subject to operating leases of lessors;
and prepaid assets. SFAS 144 also expands the scope of a discontinued operation
to include a component of an entity, and eliminates the current exemption to
consolidation when control over a subsidiary is likely to be temporary. This
statement is effective for fiscal years beginning after December 15, 2001. The
Company is currently evaluating the impact of adopting this standard on the
consolidated financial statements.

Commitments

The Company leases office space under noncancellable operating leases.
Minimum rental expense is recognized on a straight-line basis over the term of
the lease, regardless of when payments are due. Rent expense was approximately
$2,909,000, $3,048,000 and $3,099,000 for the years ended December 31, 1999,
2000 and 2001, respectively. The Companys primary lease expires in March
2002. New space has been acquired for which the lease commences in April 2002
and expires ten years thereafter. As of December 31, 2001, the Company had
deposits of $127,000 relating to the lease agreements. In addition, as of
December 31, 2001, the Company entered into a letter of credit of $1,030,000
for the new office lease.
As of December 31, 2001, the future minimum operating lease payments, including
the minimum commitments on the new office lease, are as follows (in thousands):

|                        |  |        |        | 
|----------------------- |  | ------ | ------ | 
|Year Ending December 31 |  | Amount
|                        |  |       
|2002                    |  | $      | 3,423  | 
|2003                    |  |        | 3,390  | 
|2004                    |  |        | 2,760  | 
|2005                    |  |        | 2,734  | 
|2006                    |  |        | 2,624  | 
|Thereafter              |  |        | 13,747 | 
|                        |  |        |        | 
|                        |  | $      | 28,678 | 
|                        |  |        |        | 

Factors That May Affect Future Results and Market Price of Stock

We may continue to experience a downturn in sales from several of our core
back office software products due to our inability to move their related
technologies to a completely web-based architecture.To maintain our
competitive position, we must enhance and improve existing products and
continue to introduce new products and new versions of existing products that
keep pace with technological developments, satisfy increasingly sophisticated
customer requirements and achieve market acceptance. IT directors of many
companies now believe that all of their enterprise software applications should
be deployable over the web. Other than Employee Time Collection and the
Business Intelligence reporting tools components of Deltek Costpoint, many of
our software applications cannot be operated over the Internet without the

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use of remote control software technology. It may take several years to
rebuild many of these application products in technologies that will fully
support web-based, thin client architecture. The Companys inability to port
to or run on new or increasingly popular operating systems, or the Companys
failure to successfully enhance and improve its products in a timely manner,
could have a material adverse effect on the Companys business, results of
operations or financial position.

Future revenue growth is dependent in part on our successful introduction
of our new PSA application suite, Deltek Vision.The Deltek Vision Application
Suite development effort began during third quarter of year 2000 and is
directly targeted at the emerging market for PSA applications. Deltek Vision
is intended to automate accounting, billing, employee time and expense, CRM,
proposals, resource planning and scheduling, human resources, knowledge
management, and project e-business. Deltek plans to deliver early releases of
this new application suite during the first quarter of 2002. Growth from
software sales is dependent, in part, on our ability to successfully launch
this and additional new products and our ability to retain and hire sales
personnel. See Business-Products.

Adverse economic conditions may result in decreased revenues or lower
revenue growth. The revenue growth and profitability of the Companys business
depends on the overall demand for computer software and services, particularly
in the product segments in which we compete. Because our sales are primarily
to major corporate and government customers, our business also depends on
general economic and business conditions. A softening of demand for computer
software caused by a weakening of the economy may result in decreased revenues
or lower revenue growth rates. In particular, one of the challenges the
Company continues to face in promoting future growth in license revenues is the
successful refocusing of its marketing and sales efforts to the PSA area of its
applications business. There can be no assurance that the Company will be able
to effectively promote future revenue growth in its systems software and
business applications areas.

Several factors may require the Company to defer recognition of license
revenue for a significant period of time after entering into a license
agreement.These factors include:



| |  | whether the license agreement relates partially or entirely to then unavailable software products;                                                                      
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | whether enterprise transactions include both currently deliverable software products and software products that are under
development or other undeliverable elements;  
| 
| |  | whether the customer demands services that include significant modifications, customizations or complex interfaces that
could delay product delivery or acceptance;     
| 
| |  | whether the transaction involves acceptance criteria that may preclude revenue recognition or if there are identified
product-related issues, such as known defects; and
| 
| |  | whether the transaction involves payment terms or fees that depend upon contingencies.                                                                                  

Because of the factors listed above and other specific requirements under
GAAP for software revenue recognition, the Company must have very precise terms
in its license agreements in order to recognize revenue when it initially
delivers software or performs services.

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Although the Company has a standard form of license agreement that meets
the criteria under GAAP for current revenue recognition on delivered elements,
it negotiates and revises these terms and conditions in some transactions.
Negotiation of mutual acceptance terms and conditions can extend the sales
cycle, and sometimes we do not obtain terms and conditions that permit revenue
recognition at the time of delivery or even as work on the project is
completed.

Recent accounting pronouncements could adversely impact our profitability
by delaying some revenue recognition into future periods. Over the past
several years, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position or SOP 97-2, Software Revenue Recognition SOP
98-4, Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition, and SOP 98-9, Modification of SOP 97-2 Software Revenue
Recognition with Respect to Certain Transactions. These standards address
software revenue recognition matters primarily from a conceptual level and do
not include specific implementation guidance. The Company believes that it is
currently in compliance with SOPs 97-2, 98-4 and SOP 98-9. The Company adopted
SOP 98-9 on January 1, 2000 and has changed certain business policies to meet
the requirements of this SOP.

The accounting profession continues to discuss certain provisions of SOP
No. 97-2 and Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements with the objective of providing additional guidance on
potential interpretations. These discussions and the issuance of
implementation guidelines and interpretations, once finalized, could lead to
unanticipated changes in our current revenue accounting practices, which could
cause us to recognize lower revenues. As a result, we may change its business
practices significantly in order to continue to recognize a substantial portion
of its license revenues. These changes may reduce demand, extend sales cycles,
increase administrative costs and otherwise adversely affect the Company.

We may experience fluctuations in quarterly operating results that may
adversely impact the price of our stock.Our operating results for any quarter
are subject to significant variation depending upon a number of factors
including the following:



| |  |  | the discretionary nature of our customers purchase and budget cycles;                      
| | - |  | --------------------------------------------------------------------------------------------
|
| |  |  | demand for our products;                                                                    
|
| |  |  | the size and timing of specific sales;                                                      
|
| |  |  | the delay or deferral of customer implementations;                                          
|
| |  |  | the level of product and price competition that we encounter;                               
|
| |  |  | the length of our sales cycles;                                                             
|
| |  |  | our ability to attract and retain personnel;                                                
|
| |  |  | the timing of new hires;                                                                    
|
| |  |  | the timing of our new product introductions and product
enhancements and of our competitors;
|
| |  |  | the mix of products and services we sell;                                                   
|
| |  |  | the activities of and acquisitions by our competitors;                                      
|
| |  |  | the timing of our international user conference;                                            
|
| |  |  | general economic conditions;                                                                
|
| |  |  | our ability to develop and market new software products and enhancements;                   

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| |  |  | our ability to control costs; and  
| | - |  | -----------------------------------
|
| |  |  | our ability to collect receivables.

Our future quarterly operating results from time to time may not meet the
expectations of market analysts or investors. In that event, the price of our
common stock would likely be materially adversely affected.

Our operating results, particularly our quarterly results, could be
significantly affected by the loss or delay of individual.Our revenues from
license fees are difficult to predict because of the length and variability of
our sales cycles (typically three to 18 months). Our operating expenses, on the
other hand, are based on anticipated revenue trends. A high percentage of our
operating expenses are relatively fixed. To the extent we incur expenses
before obtaining anticipated revenues, our operating results could be
materially adversely affected.

We may be unable to accurately forecast timing of sales, which may
adversely affect our business.We use a pipeline system, a common industry
practice, to forecast sales and trends in our business. Our sales personnel
monitor the status of all proposals, such as the date when they estimate that a
customer will make a purchase decision and the potential dollar amount of the
sale. Management aggregates these estimates periodically in order to generate
a sales pipeline. Management compares the pipeline at various points in time
to look for trends in our business. While this pipeline analysis may provide
some guidance to management in business planning and budgeting, these pipeline
estimates are necessarily speculative and may not correlate to revenues in a
particular quarter or over a longer period of time. A variation in the
conversion of the pipeline into contracts or in the pipeline itself could cause
us to improperly plan or budget and thereby adversely affect its business or
results of operations.

We compete with a number of companies, many of which have significantly
greater financial, technical, marketing and other resources than the Company.
As our larger competitors, such as Oracle, Peoplesoft and SAP, begin to
experience a deceleration in their core business and refocus their marketing
and sales efforts to the middle market in which we actively markets our
products, we expect such competitors to implement increasingly aggressive
pricing programs. In addition, certain competitors such as Oracle, Peoplesoft,
SAP and Siebel, have well-established relationships with our current and
prospective customers and with major accounting and consulting firms that may
have an incentive to recommend such competitors over us. We also face indirect
competition from the internal MIS departments of our potential customers. In
the front-office systems market we face competition from customers internal

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information technology departments, systems integrators, as well as from other
application software providers such as Siebel and Goldmine, which offer a
variety of products and services to address this market. Many of our customers
and potential customers have attempted to develop front office systems
in-house, either alone or with the help of systems integrators. We may not be
able to compete successfully in this market. There can be no assurance that our
products will continue to compete favorably or that we will be successful in
the face of increasing competition from new products and enhancements
introduced by existing or new competitors. In addition, increased competition
may result in price reductions, reduced margins and loss of market share, any
of which could have a material adverse effect on our business, operating
results and financial condition. See Business  Competition.

Our future success is dependent upon our ability to hire and retain
employees. Our success is dependent upon our ability to attract and retain
highly skilled managerial, research and development, consulting, customer
service, sales and marketing personnel. Although we currently are investing,
and plan to continue to invest, significant resources to expand our direct
sales force and our technical and customer support staff, we have at times
experienced difficulties in recruiting and retaining qualified personnel. We
could be adversely affected if we are unable to recruit qualified personnel or
if senior managers or other such personnel were to leave our employ and
qualified replacements were not available. Competition for skilled personnel
in the software industry is intense, particularly in the Washington DC metro
area. There can be no assurance that we will continue to be able to attract and
retain the personnel we require to develop and market new and enhanced products
or to market and service its existing products and conduct our operations
successfully. Any inability to do so could have a material adverse effect on
our business, operating results and financial condition. In addition, we may
incur increased compensation costs in order to attract and retain skilled
employees.

Our success will also depend in part on the continued services of our key
employees, particularly our senior management personnel. We do not have
employment agreements with any of our key employees and do not maintain any
key-person life insurance. The resignation or loss of Kenneth E. deLaski, the
Companys President and Chief Executive Officer, could have a material adverse
effect on our business, operating results and financial condition.

We face risks associated with new product development, rapid technology
change, and potential liability. The business application software market is
characterized by rapidly changing technologies, evolving industry standards,
frequent new product introductions and short product life cycles. Our future
success will depend, to a substantial degree, upon our ability to enhance our
existing products and to develop and introduce, on a timely and cost-effective
basis, new products and features that meet changing customer requirements and
emerging and evolving industry standards. There can be no assurance that we
will be successful in completing the development of new products and
enhancements or that any new product or enhancement it may introduce will
achieve market acceptance.

The development of new, technologically advanced software products is a
complex and uncertain process requiring high levels of innovation, as well as
the accurate anticipation of technological and market trends. The introduction
of new or enhanced products also requires us to manage the transition from or
integration with older products in order to minimize disruption

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in sales of existing products. There can be no assurance that our development
efforts will progress satisfactorily or keep pace with industry developments.
We allocate resources for research and development projects based on planned
product introductions and enhancements; however, actual expenditures may
significantly differ from amounts allocated. We have experienced, and may
experience in the future, delays in the introduction of our products, due to
factors internal and external to us. Additionally, because our software
products are complex, there can be no assurance that, despite testing, errors
will not be found after commencement of commercial shipments, resulting in loss
of or delay in market acceptance. The sale and support of our software
products entails the risk of product liability claims. In addition, the
failure to perform services to a customers expectations may result in our not
being paid for services rendered, may damage our reputation and may result in a
claim being brought against us. We maintain errors and omissions insurance;
however, a successful claim for product or service liability brought against us
could have a material adverse effect upon our business, operating results and
financial condition. See Business  Products and  Product Development.

We may be subject
to risks from acquisition activities. As part of our
growth strategy, we have acquired or invested in, and from time to time may
acquire or invest in, complementary businesses, technologies and product lines.
In order to successfully integrate acquired products into our sales and
marketing channels, we must train our sales force on acquired products and
integrate employees of the acquired companies with respect to sales commission,
territories, product positioning and training. In addition, certain of such
acquired assets, licenses or technology may require significant additional
development, such as the completion of product functionality, before the
commercial release of products. Additional risks from acquisitions include
disruption of our ongoing business; diversion of management from day-to-day
operations; amortization of acquired intangible assets; impairment of
relationships with customers, employees and strategic partners; loss of
personnel; difficulty of maintaining uniform standards, controls, procedures
and policies; and potential liabilities arising from any acquisition. Our
inability to address such risks or fulfill expectations regarding revenues from
acquired businesses, products and technologies could have a material adverse
effect on our business, operating results and financial condition.

Our continued
success depends upon our ability to manage growth. We are
currently experiencing growth through acquisitions, which have placed, and will
continue to place, a strain on our administrative, operational and financial
resources and demands on our systems and controls. This growth has resulted in
an increasing level of responsibility for our management personnel. Our ability
to manage our growth successfully will also require us to continue to expand
and improve our operational, management and financial systems and controls on a
timely basis. If our management is unable to manage growth effectively, our
business, operating results and financial condition could be materially
adversely affected.

We face the
uncertainty of expansion into new markets. We believe that
our future success is dependent, in part, on our ability to successfully
penetrate the professional service automation market, to adapt our
product-development and marketing strategies to meet the developing needs of
our marketplace, and to expand internationally. Although we have an ongoing
program to further customize and add functionality to our products in order to
address the specific needs of customers in new markets, our limited resources
may restrict our ability to

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track developments in these markets, to develop appropriate products, and to
effectively pursue product-development and marketing activities and strategies
in multiple markets simultaneously. There can be no assurance that our products
will be accepted in new markets. Our inability to successfully expand the
markets for our products or develop marketing strategies could have a material
adverse effect on our business, operating results and financial condition.

We are partially dependent upon organizations with federal government
contracts. A significant portion of our total revenues is derived from
customers that provide products and services under federal government
contracts. We believe that, at least in the near term, such organizations will
continue to represent a large percentage of our customers and account for a
significant percentage of our total revenues. While such organizations are
subject to the same general economic conditions as other businesses, demand for
their products and services is also dependent upon applicable procurement
policies and the availability of appropriated funds. Any significant
downsizing, consolidation or liquidation of such organizations as a result of
changes in procurement policies, budget reductions or reallocations or other
causes could adversely affect our business, operating results and financial
condition.

We continue to rely on third-party
software development tools. We license
from third parties certain software development tools that we utilize in the
development of our products. Accordingly, we are dependent upon such third
parties abilities to deliver quality products, correct errors, support their
current products, develop new and enhanced products on a timely and
cost-effective basis and respond to emerging industry standards and other
technological changes. Should these third-party development tools become
unavailable, or should their developers fail to adequately support or enhance
them, we would be required to establish relationships with alternative
third-party providers and to rewrite our products using different development
tools. Although we believe that other development tools with comparable
functionality are currently available from other third parties, there can be no
assurance that, if needed, replacement products could be obtained on reasonable
terms. In addition, there can be no assurance that we could successfully
rewrite our products using different development tools or that it would not
encounter substantial delays in doing so. Our inability to rewrite our
products using different development tools on a timely and cost-effective basis
could have a material adverse effect on our business, operating results and
financial condition. See Business  Products and  Product Development.

We may be unable to adequately protect our proprietary rights and be
subject to risks of infringement. Our success and ability to compete is
dependent in part upon its our proprietary software. We rely on a combination
of copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to establish and protect our rights in our software.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy, design around or reverse engineer aspects of our products or
to obtain and use information that we regard as proprietary. Furthermore, we
have no patents, and existing copyright law affords only limited protection.
In addition, the laws of some countries do not protect our proprietary rights
to the same extent as do the laws of the United States. Accordingly, there can
be no assurance that we will be able to protect our proprietary software
against unauthorized third-party copying or use, which could adversely affect
our competitive position.

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There are currently no claims pending against us relating to the
infringement of any proprietary rights of third parties. There can be no
assurance, however, that third parties will not claim infringement by us of
their intellectual property rights. We expect that software product developers
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and the functionality of products
in different industry segments overlaps. Any such claims, with or without
merit, could be time-consuming to defend, result in costly litigation, divert
managements attention and resources from day-to-day operations or cause delays
in the delivery or implementation of our products. In addition, such claims
could require us to discontinue the use of certain software codes or processes,
cease the manufacture, use and sale of infringing products, and develop
non-infringing technology or to obtain licenses to the alleged infringing
technology. There can be no assurance we would be able to develop alternative
technologies or to obtain such licenses or, if a license were obtainable, that
the terms would be commercially acceptable to us. In the event of a successful
claim of product infringement against us and our failure or inability to
license the infringed or similar technology, our business, operating results
and financial condition could be materially adversely affected.

Changes in general global economic, political and market conditions could
cause decreases in demand for our software and related services which could
negatively affect our revenue and operating results and the market price of our
stock. Our revenue and profitability depends on the overall demand for our
software and related services. A downturn in the global economy and financial
markets could result in a delay or cancellation of customer purchases. Some of
our competitors have recently announced that economic conditions have
negatively impacted their financial results. Recent developments associated
with the terrorist attacks on the United States have resulted in economic,
political and other uncertainties, which could adversely affect our revenue
growth and operating results. If demand for our software and related services
decreases, our revenues may decrease and our operating results would be
adversely affected. A reduction in revenues may also cause our stock price to
fall.

Terrorist activity
may interfere with our ability to conduct business.
Recent terrorist attacks on the United States present a potential threat to
communication systems, information technology and security, damage to buildings
and their contents and injury to or death of key employees. We may need to take
steps to increase security and add necessary protections against terrorist
threats. This may require significant capital expenditure or adjustment or
change of business practices which could result in loss of focus and
distraction to our employees. Moreover, an actual or perceived increase in risk
of travel due to further terrorist acts may reduce our ability to demonstrate
products, meet with prospective customers and provide professional services and
training which may adversely affect our ability to close sales and meet
projected forecasts. Although built to structural standards, our facilities are
physically vulnerable to a terrorist attack. Significant structural damage to
our facilities could cause a disruption of our information systems and loss of
financial data and certain customer data, which could adversely impact our
business operations.

Our principal shareholders have the ability
to exercise control. Kenneth
E. deLaski, our Chairman, President, and Chief Executive Officer, and Donald
deLaski, Director, together with

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their affiliates, in the aggregate own approximately 49.9% of the outstanding
shares of the Common Stock as of March 12, 2002. Such shareholders could delay
or prevent a change in control, impede a merger, consolidation, takeover or
other business combination involving us, or discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of us.

A substantial number of our shares are eligible for resale, which could
adversely affect the market price. Substantially all of our restricted
securities are available for resale pursuant to Rule 144 under the Securities
Act of 1933, as amended (the Securities Act) including the shares owned by
the principal shareholders. In October 1998, pursuant to contractual
obligations to do so, we registered an aggregate of 516,751 shares of Common
Stock and 130,000 shares of Common Stock issuable pursuant to outstanding
warrants under the Securities Act. Sales of substantial amounts of such
restricted or registered securities could adversely affect prevailing market
prices for the common Stock. The warrants noted above expired in May 2001,
none of which were ever exercised.

The market price of our common stock is volatile which could materially
impact your investment. The market price of our common stock has historically
been volatile. We believe factors such as quarterly fluctuations in results of
operations, announcements of new products and acquisitions by us or by our
competitors, changes in earnings estimates by analysts, changes in accounting
treatments or principles and other factors may cause the market price of the
common stock to fluctuate, perhaps substantially. The market price of our
common stock also may be affected by our ability to meet market analysts expectations, and any failure to meet such
expectations could have a material adverse effect on the market price of our
common stock. In addition, securities prices for many technology companies
fluctuate widely for reasons, which may be unrelated to operating results of
such companies. These fluctuations, as well as general economic, political and
market conditions, may adversely affect the market price of our common stock in
the future. In the past, following periods of volatility in the market price of
a companys securities, class action litigation has often been instituted
against such company. Any such litigation instigated against us could result
in substantial costs and a diversion of managements attention and resources
from day-to-day operations, which could have a material adverse effect on our
business, operating results and financial condition. See Market for
Registrants Common Equity and Related Stockholder Matters.







ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates. The
Companys investment policy restricts the Company to investing with high credit
quality financial institutions. A failure of these investment securities to
perform at their historical levels could reduce the interest income realized by
the Company, which could have a material adverse effect on the business,
financial condition and results of operations of the Company. The
impact of a 10% fluctuation in interest rates would be approximately
$44,000.

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The fair value of any fixed rate debt including the Companys line of
credit is subject to change as a result of movements in interest rates. Such
change could have material adverse effect on the Companys financial position
and results of operations.







ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information required by this Item is set forth below beginning on page
F-1, and is incorporated herein by this reference.







ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III







ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to the
registrants definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this Form 10-K.







ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
registrants definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this Form 10-K.







ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
registrants definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this Form 10-K.







ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
registrants definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this Form 10-K.

PART IV

42



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##### Table of Contents









ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Documents filed as a part of this report:

1.     Financial Statements: The financial statements listed in the
accompanying Index to Financial Statements and Schedule are filed as part of
this report and incorporated herein by reference.

2.     Financial Statement Schedules: The financial statement schedules
listed in the accompanying Index to Financial Statements and Schedules are
filed as part of this report and incorporated herein by reference.

3.     Exhibits: The exhibits listed in the following Exhibit Index are
incorporated herein by reference.

(b)  Reports on Form 8-K

No reports on Form 8-K were filed during the last quarter of the period
covered by this report.

43



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

|               |  |                                                                                                         
|-------------- |  | --------------------------------------------------------------------------------------------------------
|March 19, 2002 |  | /s/ Kenneth E.
deLaski                                                                                  
|               |  |                                                                                                         
|               |  | Kenneth E. deLaski, Chairman of the Board
of Directors, President, Chief Executive
Officer, and Director
|              
|March 19, 2002 |  | /S/ Lori L.
Becker                                                                                      
|               |  |                                                                                                         
|               |  | Lori L. Becker, Chief Financial Officer
Principal Financial and Accounting Officer                      
|              
|March 19, 2002 |  | /S/ Donald
deLaski                                                                                      
|               |  |                                                                                                         
|               |  | Donald deLaski, Director                                                                                
|              
|March 19, 2002 |  | /S/ Darrell J.
Oyer                                                                                     
|               |  |                                                                                                         
|               |  | Darrell J. Oyer, Director                                                                               
|              
|March 19, 2002 |  | /S/Charles W. Stein                                                                                     
|               |  |                                                                                                         
|               |  | Charles W. Stein, Director                                                                              
|              
|March 19, 2002 |  | /S/ Robert E.
Gregg                                                                                     
|               |  |                                                                                                         
|               |  | Robert E. Gregg, Director                                                                               
|              
|March 19, 2002 |  | /S/ James F.
Peterson                                                                                   
|               |  |                                                                                                         
|               |  | James F. Peterson, Director                                                                             

44



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##### Table of Contents



EXHIBIT INDEX

|            |  |                                                                                                                                                    
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                             
|           
|3.1(1)      |  | Amended and Restated Articles of Incorporation of the Registrant.                                                                                  
|           
|3.2(5)      |  | Amended and Restated Bylaws of the Registrant.                                                                                                     
|           
|4.1(2)      |  | Specimen Common Stock certificate of the Registrant.                                                                                               
|           
|10.1(1)     |  | 1987 Employee Stock Option Plan.                                                                                                                   
|           
|10.2(1)     |  | Employee Time Accelerated Stock Option Plan (revised)                                                                                              
|           
|10.3(1)     |  | 1996 Stock Option Plan.                                                                                                                            
|           
|10.4(1)     |  | 1996 Employee Stock Purchase Plan.                                                                                                                 
|           
|*10.5(3)    |  | OEM Software License Agreement by and between the Company and Centura Software Corporation dated as of March 1,
1993, as amended.                  
|           
|*10.6(3)    |  | Cognos Desktop OEM Agreement by and between the Company and Cognos Corporation dated as of February 28, 1994, as
amended.                          
|           
|*10.7(3)    |  | Micro Focus OSX Application Vendor License Agreement by and between the Company and Micro Focus Incorporated dated
as of June 10, 1993, as amended.
|           
|10.8(1)     |  | Agreement of Lease by and between the Company and Tysons Corner
Limited Partnership, dated as of November 12, 1991, as amended.                    
|           
|10.9(1)     |  | Agreement of Lease by and between the Company and Tysons Corner
Limited Partnership, dated as of November 12, 1992, as amended.                    
|           
|10.10(2)    |  | Form of Indemnity Agreement for officers and directors.                                                                                            
|           
|10.11(2)    |  | Form of Tax Indemnification Agreement.                                                                                                             
|           
|10.12(2)    |  | Seventh Amendment to Agreements of Lease by and between the Company
and Tysons Corner Limited Partnership, dated as of December 17, 1997.          
|           
|*10.15      |  | Embedded distribution agreement between the Company and BEA Systems, Inc.
dated as of December 19, 2000.                                           
|           
|21(4)       |  | Subsidiaries of the Company.                                                                                                                       
|           

45



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|       |  |                                                                                                                                                   
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|**23.1 |  | Consent of Arthur Andersen LLP.                                                                                                                   
|      
|**99   |  | Confirmation letter to the Securities and Exchange Commission, dated March 19,
2002, pertaining to receipt of assurances from Arthur Andersen LLP.

---------------------

*     This Exhibit has been filed separately with the Commission pursuant to
an application for confidential treatment. The confidential portions of this
Exhibit have been omitted and are marked by an asterisk.

**  Filed with this
10-K.

(1)  Incorporated by reference to the Companys Form S-1 filed on December
19, 1996 (File No. 333-18247).

(2)  Incorporated by reference to the Companys Amendment No. 1 to Form
S-1 filed on January 28, 1997 (File No. 333-18247).

(3)  Incorporated by reference to the Companys Amendment No. 2 to Form
S-1 filed on February 24, 1997 (File No. 333-18247).

(4)  Incorporated by reference to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (File No. 000-22001).

(5)  Incorporated by reference to the Companys Quarterly Report on Form
10-Q filed on August 14, 2000 (File No. 000-22001).

46



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DELTEK SYSTEMS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

|                                                    |                                                       |      |    |     | 
|--------------------------------------------------- | ----------------------------------------------------- | ---- | -- | --- | 
|                                                    |                                                       | Page
|                                                   
|Report of Independent Public Accountants            |                                                       |      | F1 |    
|                                                   
|Consolidated Balance Sheets                         |                                                       |      |    |    
|                                                    | As of December 31, 2000 and 2001                      |      |    | F2  | 
|                                                   
|Consolidated Statements of Operations               |                                                       |      |    |    
|                                                    | For the Years Ended December 31, 1999, 2000, and 2001 |      |    | F3  | 
|                                                   
|Consolidated Statements of Changes in Shareholders |                                                       |      |    |    
|Equity and Comprehensive Income                     |                                                       |      |    |    
|                                                    | For the Years Ended December 31, 1999, 2000, and 2001 |      |    | F4  | 
|                                                   
|Consolidated Statements of Cash Flows               |                                                       |      |    |    
|                                                    | For The Years Ended December 31, 1999, 2000, and 2001 |      |    | F5  | 
|                                                   
|Notes to Consolidated Financial Statements          |                                                       |      |    |    
|                                                    | December 31, 2000 and 2001                            |      |    | F6  | 
|                                                   
|Valuation and Qualifying Accounts                   |                                                       |      |    |    
|                                                    | For the Years Ended December 31, 1999, 2000, and 2001 |      |    | F23 | 





---



##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Deltek Systems, Inc.:

We have audited the accompanying consolidated balance sheets of Deltek Systems,
Inc. (a Virginia corporation) and subsidiaries, as of December 31, 2000 and
2001, and the related consolidated statements of operations, changes in
shareholders equity and comprehensive income, and cash flows for each of the
three years in the period ended December 31, 2001. These financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Deltek Systems, Inc. and
subsidiaries, as of December 31, 2000 and 2001 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II, Valuation and Qualifying
Accounts, is the responsibility of the Companys management and is presented
for the purpose of complying with the Securities and Exchange Commissions
rules and is not a part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.



| | ARTHUR ANDERSEN LLP
| | -------------------

Vienna, Virginia
February 1, 2002

F-1



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##### Table of Contents



DELTEK SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
As of December 31, 2000 and 2001
(In Thousands, Except Share and Per Share Data)



|Assets:                                                                                                                                          |                                                                                                |   |        |        |      |   |        |       
|------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- | - | ------ | ------ | ---- | - | ------ | ------
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|                                                                                                                                                 |                                                                                                |   | 2000   |        | 2001
|                                                                                                                                                 |                                                                                                |   |        |        |     
|Current assets:                                                                                                                                  |                                                                                                |   |        |        |      |   |        |       
|                                                                                                                                                
|                                                                                                                                                 | Cash and cash equivalents                                                                      |   | $      | 8,939  |      |   | $      | 18,901
|                                                                                                                                                
|                                                                                                                                                 | Marketable securities                                                                          |   |        | 5,217  |      |   |        | 11,482
|                                                                                                                                                
|                                                                                                                                                 | Accounts receivable, net of allowance for
doubtful accounts of $1,652 and $2,394,
respectively |   |        | 15,159 |      |   |        | 12,263
|                                                                                                                                                
|                                                                                                                                                 | Deferred income taxes                                                                          |   |        | 1,206  |      |   |        | 2,651 
|                                                                                                                                                
|                                                                                                                                                 | Prepaid expenses and other current assets                                                      |   |        | 4,375  |      |   |        | 3,059 
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|Total current assets                                                                                                                             |                                                                                                |   | 34,896 |        |      |   | 48,356 |       
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|Furniture, equipment, and leasehold improvements,
at cost, net of accumulated depreciation and
amortization of $10,528 and $12,995, respectively |                                                                                                |   | 7,358  |        |      |   | 6,247  |       
|                                                                                                                                                
|Software development costs, net of accumulated
amortization of $4,210 and $5,567, respectively                                                   |                                                                                                |   | 6,319  |        |      |   | 6,199  |       
|                                                                                                                                                
|Goodwill and purchased intangibles, net                                                                                                          |                                                                                                |   | 15,238 |        |      |   | 11,465 |       
|                                                                                                                                                
|Other assets                                                                                                                                     |                                                                                                |   | 350    |        |      |   | 267    |       
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|Total assets                                                                                                                                     |                                                                                                | $ | 64,161 |        |      | $ | 72,534 |       
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|Liabilities and shareholders equity                                                                                                             |                                                                                                |   |        |        |      |   |        |       
|                                                                                                                                                
|Current liabilities:                                                                                                                             |                                                                                                |   |        |        |      |   |        |       
|                                                                                                                                                
|                                                                                                                                                 | Accounts payable and accrued expenses                                                          |   | $      | 8,962  |      |   | $      | 8,065 
|                                                                                                                                                
|                                                                                                                                                 | Deferred revenue                                                                               |   |        | 9,968  |      |   |        | 13,420
|                                                                                                                                                
|                                                                                                                                                 | Income taxes payable                                                                           |   |        |       |      |   |        | 1,739 
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|Total current liabilities                                                                                                                        |                                                                                                |   | 18,930 |        |      |   | 23,224 |       
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|                                                                                                                                                
|Long-term deferred income tax liability                                                                                                          |                                                                                                |   |       |        |      |   | 932    |       
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|Total liabilities                                                                                                                                |                                                                                                |   | 18,930 |        |      |   | 24,156 |       
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|Commitments and contingencies                                                                                                                    |                                                                                                |   |        |        |      |   |        |       
|                                                                                                                                                
|Shareholders equity:                                                                                                                            |                                                                                                |   |        |        |      |   |        |       
|                                                                                                                                                
|Preferred stock, $0.001 par value; 2,000,000 shares
authorized; none issued or outstanding                                                       |                                                                                                |   |       |        |      |   |       |       
|                                                                                                                                                
|Common stock, $0.001 par value; 45,000,000 shares
authorized; 15,125,058 and 15,272,999 shares issued
and outstanding, respectively              |                                                                                                |   | 15     |        |      |   | 15     |       
|                                                                                                                                                
|Additional paid-in capital                                                                                                                       |                                                                                                |   | 424    |        |      |   | 1,050  |       
|                                                                                                                                                
|Retained earnings                                                                                                                                |                                                                                                |   | 44,901 |        |      |   | 47,378 |       
|                                                                                                                                                
|Accumulated other comprehensive income, net of tax                                                                                               |                                                                                                |   | (109   | )      |      |   | (65    | )     
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|Total shareholders equity                                                                                                                       |                                                                                                |   | 45,231 |        |      |   | 48,378 |       
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       
|Total liabilities and shareholders equity                                                                                                       |                                                                                                | $ | 64,161 |        |      | $ | 72,534 |       
|                                                                                                                                                 |                                                                                                |   |        |        |      |   |        |       

The accompanying notes are an integral part of these consolidated balance sheets.

F-2



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##### Table of Contents



DELTEK SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 2000, and 2001
(In Thousands, Except Per Share Data)

|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|------------------------------------------------------------------------------- | -------------------------------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                                |                                                    |   | 1999   |        | 2000 |   | 2001  
|                                                                                |                                                    |   |        |        |      |   |       
|Revenues:                                                                       |                                                    |   |        |        |      |   |        |        |  |   |        |       
|                                                                               
|                                                                                | License fees                                       |   | $      | 29,836 |      |   | $      | 27,603 |  |   | $      | 23,157 | 
|                                                                               
|                                                                                | Services                                           |   |        | 65,321 |      |   |        | 67,642 |  |   |        | 67,046 | 
|                                                                               
|                                                                                | Third-party equipment and software                 |   |        | 3,087  |      |   |        | 3,013  |  |   |        | 2,603  | 
|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|                                                                                |                                                    |   | 98,244 |        |      |   | 98,258 |        |  |   | 92,806 |       
|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|Operating expenses:                                                             |                                                    |   |        |        |      |   |        |        |  |   |        |       
|                                                                               
|                                                                                | Cost of software                                   |   |        | 2,583  |      |   |        | 3,134  |  |   |        | 4,010  | 
|                                                                               
|                                                                                | Cost of services                                   |   |        | 30,849 |      |   |        | 37,295 |  |   |        | 33,503 | 
|                                                                               
|                                                                                | Cost of third-party equipment and software         |   |        | 2,640  |      |   |        | 2,711  |  |   |        | 2,380  | 
|                                                                               
|                                                                                | Software development                               |   |        | 16,663 |      |   |        | 17,671 |  |   |        | 19,638 | 
|                                                                               
|                                                                                | Sales and marketing                                |   |        | 11,592 |      |   |        | 14,174 |  |   |        | 15,547 | 
|                                                                               
|                                                                                | General and administrative                         |   |        | 5,939  |      |   |        | 8,287  |  |   |        | 8,418  | 
|                                                                               
|                                                                                | Amortization of goodwill and purchased intangibles |   |        | 1,051  |      |   |        | 2,505  |  |   |        | 4,053  | 
|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|Total operating expenses                                                        |                                                    |   | 71,317 |        |      |   | 85,777 |        |  |   | 87,549 |       
|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|Income from operations                                                          |                                                    |   | 26,927 |        |      |   | 12,481 |        |  |   | 5,257  |       
|                                                                               
|Interest income                                                                 |                                                    |   | 1,166  |        |      |   | 878    |        |  |   | 443    |       
|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|Income before income taxes                                                      |                                                    |   | 28,093 |        |      |   | 13,359 |        |  |   | 5,700  |       
|                                                                               
|Provision for income taxes                                                      |                                                    |   | 10,881 |        |      |   | 5,660  |        |  |   | 3,223  |       
|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|Net income                                                                      |                                                    | $ | 17,212 |        |      | $ | 7,699  |        |  | $ | 2,477  |       
|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|Basic net income per share                                                      |                                                    | $ | 1.00   |        |      | $ | 0.47   |        |  | $ | 0.16   |       
|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|Diluted net income per share                                                    |                                                    | $ | 0.97   |        |      | $ | 0.47   |        |  | $ | 0.16   |       
|                                                                                |                                                    |   |        |        |      |   |        |        |  |   |        |        | 
|Weighted-average shares outstanding                                             |                                                    |   | 17,284 |        |      |   | 16,309 |        |  |   | 15,224 |       
|                                                                               
|Weighted-average shares outstanding, including
dilutive effect of stock options |                                                    |   | 17,732 |        |      |   | 16,505 |        |  |   | 15,279 |       

The accompanying notes are an integral part of these consolidated statements.

F-3



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##### Table of Contents



DELTEK SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY AND COMPREHENSIVE INCOME
For the Years Ended December 31, 1999, 2000, and 2001
(In Thousands, Except Share Data)

|                           |                                                     |   |               |      |              |           |                    |            |          |   |                                         |    |              |   |                     |         |   |   |        |   |  |   |      |      |   |   |      |     |  |   |        |         |  
|-------------------------- | --------------------------------------------------- | - | ------------- | ---- | ------------ | --------- | ------------------ | ---------- | -------- | - | --------------------------------------- | -- | ------------ | - | ------------------- | ------- | - | - | ------ | - |  | - | ---- | ---- | - | - | ---- | --- |  | - | ------ | ------- | -
|                           |                                                     |   | Comprehensive |      | Common Stock |           | Additional Paid-In |            | Retained |   | Accumulated Comprehensive Income, Other |    | Unearned     |   | Total Shareholders'
|                           |                                                     |   | Income        |      | Shares       | Par Value | Capital            |            | Earnings |   | net of tax                              |    | Compensation |   | Equity             
|                           |                                                     |   |               |      |              |           |                    |            |          |   |                                         |    |              |   |                     |         |  
|Balance, December 31, 1998 |                                                     | $ |              |      |              |           | 17,854,151         |            |          | $ | 18                                      |    |              | $ | 21,568              |         |   | $ | 19,990 |   |  | $ |     |      |   | $ | (170 | )   |  | $ | 41,406 |        
|                          
|                           | Exercise of stock options                           |   |               |     |              |           |                    | 134,680    |          |   |                                         |   |              |   |                     | 497     |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 497     |  
|                          
|                           | Issuance of shares for
Employee Stock Purchase Plan |   |               |     |              |           |                    | 49,866     |          |   |                                         |   |              |   |                     | 689     |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 689     |  
|                          
|                           | Purchase and retirement of
common stock             |   |               |     |              |           |                    | (1,402,500 | )        |   |                                         | (1 | )            |   |                     | (13,247 | ) |   |        |  |  |   |      |     |   |   |      |    |  |   |        | (13,248 | )
|                          
|                           | Income tax benefit of options
exercised             |   |               |     |              |           |                    |           |          |   |                                         |   |              |   |                     | 516     |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 516     |  
|                          
|                           | Amortization of unearned
compensation               |   |               |     |              |           |                    |           |          |   |                                         |   |              |   |                     |        |   |   |        |  |  |   |      |     |   |   |      | 170 |  |   |        | 170     |  
|                          
|Net income                 |                                                     |   | 17,212        |      |              |           |                   |            |          |   |                                        |    |              |   |                    |         |   |   | 17,212 |   |  |   |     |      |   |   |     |     |  |   | 17,212 |        
|                          
|                           |                                                     |   |               |      |              |           |                    |            |          |   |                                         |    |              |   |                     |        
|Comprehensive income       |                                                     | $ | 17,212        |      |              |           |                    |            |          |   |                                         |    |              |   |                     |         |   |   |        |   |  |   |      |      |   |   |      |     |  |   |        |        
|                           |                                                     |   |               |      |              |           |                    |            |          |   |                                         |    |              |   |                     |        
|Balance, December 31, 1999 |                                                     |   |              |      |              |           | 16,636,197         |            |          |   | 17                                      |    |              |   | 10,023              |         |   |   | 37,202 |   |  |   |     |      |   |   |     |     |  |   | 47,242 |        
|                          
|                           | Exercise of stock options                           |   |               |     |              |           |                    | 112,945    |          |   |                                         |   |              |   |                     | 311     |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 311     |  
|                          
|                           | Issuance of shares for
Employee Stock Purchase Plan |   |               |     |              |           |                    | 73,416     |          |   |                                         |   |              |   |                     | 518     |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 518     |  
|                          
|                           | Purchase and retirement of
common stock             |   |               |     |              |           |                    | (1,697,500 | )        |   |                                         | (2 | )            |   |                     | (11,436 | ) |   |        |  |  |   |      |     |   |   |      |    |  |   |        | (11,438 | )
|                          
|                           | Income tax benefit of options
exercised             |   |               |     |              |           |                    |           |          |   |                                         |   |              |   |                     | 56      |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 56      |  
|                          
|                           | Stock options due to
acquisitions and other         |   |               |     |              |           |                    |           |          |   |                                         |   |              |   |                     | 952     |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 952     |  
|                          
|                           | Unrealized loss on investments                      |   |               | (2   | )            |           |                    |           |          |   |                                         |   |              |   |                     |        |   |   |        |  |  |   |      | (2   | ) |   |      |    |  |   |        | (2      | )
|                          
|                           | Foreign currency translation
adjustments            |   |               | (107 | )            |           |                    |           |          |   |                                         |   |              |   |                     |        |   |   |        |  |  |   |      | (107 | ) |   |      |    |  |   |        | (107    | )
|                          
|Net income                 |                                                     |   | 7,699         |      |              |           |                   |            |          |   |                                        |    |              |   |                    |         |   |   | 7,699  |   |  |   |     |      |   |   |     |     |  |   | 7,699  |        
|                           |                                                     |   |               |      |              |           |                    |            |          |   |                                         |    |              |   |                     |        
|Comprehensive income       |                                                     | $ | 7,590         |      |              |           |                    |            |          |   |                                         |    |              |   |                     |         |   |   |        |   |  |   |      |      |   |   |      |     |  |   |        |        
|                           |                                                     |   |               |      |              |           |                    |            |          |   |                                         |    |              |   |                     |        
|Balance, December 31, 2000 |                                                     |   |               |      |              |           | 15,125,058         |            |          |   | 15                                      |    |              |   | 424                 |         |   |   | 44,901 |   |  |   | (109 | )    |   |   |     |     |  |   | 45,231 |        
|                          
|                           | Exercise of stock options                           |   |               |     |              |           |                    | 64,355     |          |   |                                         |   |              |   |                     | 148     |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 148     |  
|                          
|                           | Issuance of shares for
Employee Stock Purchase Plan |   |               |     |              |           |                    | 83,586     |          |   |                                         |   |              |   |                     | 411     |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 411     |  
|                          
|                           | Income tax benefit of options
exercised             |   |               |     |              |           |                    |           |          |   |                                         |   |              |   |                     | 67      |   |   |        |  |  |   |      |     |   |   |      |    |  |   |        | 67      |  
|                          
|                           | Unrealized gain on investments                      |   |               | 62   |              |           |                    |           |          |   |                                         |   |              |   |                     |        |   |   |        |  |  |   |      | 62   |   |   |      |    |  |   |        | 62      |  
|                          
|                           | Foreign currency translation
adjustments            |   |               | (18  | )            |           |                    |           |          |   |                                         |   |              |   |                     |        |   |   |        |  |  |   |      | (18  | ) |   |      |    |  |   |        | (18     | )
|                          
|Net income                 |                                                     |   | 2,477         |      |              |           |                   |            |          |   |                                        |    |              |   |                    |         |   |   | 2,477  |   |  |   |     |      |   |   |     |     |  |   | 2,477  |        
|                           |                                                     |   |               |      |              |           |                    |            |          |   |                                         |    |              |   |                     |        
|Comprehensive income       |                                                     | $ | 2,521         |      |              |           |                    |            |          |   |                                         |    |              |   |                     |         |   |   |        |   |  |   |      |      |   |   |      |     |  |   |        |        
|                           |                                                     |   |               |      |              |           |                    |            |          |   |                                         |    |              |   |                     |        
|Balance, December 31, 2001 |                                                     |   |               |      |              |           | 15,272,999         |            |          | $ | 15                                      |    |              | $ | 1,050               |         |   | $ | 47,378 |   |  | $ | (65  | )    |   | $ |     |     |  | $ | 48,378 |        
|                           |                                                     |   |               |      |              |           |                    |            |          |   |                                         |    |              |   |                     |        

The accompanying notes are an integral part of
these consolidated statements.

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##### Table of Contents



DELTEK SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1999, 2000, and 2001
(In Thousands)

|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |       |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------- | ------- | ------- | ------ | ---- | ------- | ------- | ----- | - | ------ | ------ | ----- | -
|                                                     |                                                                                   |                                                    |         | 1999    |        | 2000 |         | 2001   
|                                                     |                                                                                   |                                                    |         |         |        |      |         |        
|Cash flows from operating activities:                |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |       
|                                                    
|                                                     | Net income                                                                        |                                                    | $       | 17,212  |        |      | $       | 7,699   |       |   | $      | 2,477  |      
|                                                    
|                                                     | Adjustments to reconcile net income to net cash
provided by operating activities |                                                    |         |         |        |      |         |         |       |   |        |        |      
|                                                    
|                                                     |                                                                                   | Depreciation and amortization                      |         |         | 3,711  |      |         |         | 5,788 |   |        |        | 7,877 |  
|                                                    
|                                                     |                                                                                   | Non-cash expense for modification of stock options |         |         |       |      |         |         | 171   |   |        |        |      |  
|                                                    
|                                                     |                                                                                   | Other non-cash charges                             |         |         | 170    |      |         |         |      |   |        |        |      |  
|                                                    
|                                                     |                                                                                   | Change in accounts receivable, net                 |         |         | (1,673 | )    |         |         | (276  | ) |        |        | 3,114 |  
|                                                    
|                                                     |                                                                                   | Change in prepaid expenses and other assets        |         |         | (1,245 | )    |         |         | (530  | ) |        |        | 1,377 |  
|                                                    
|                                                     |                                                                                   | Change in accounts payable and accrued expenses    |         |         | (1,144 | )    |         |         | 1,187 |   |        |        | (897  | )
|                                                    
|                                                     |                                                                                   | Change in income taxes payable                     |         |         |       |      |         |         |      |   |        |        | 1,739 |  
|                                                    
|                                                     |                                                                                   | Change in deferred income taxes                    |         |         | 836    |      |         |         | 1,325 |   |        |        | (922  | )
|                                                    
|                                                     |                                                                                   | Change in deferred revenue                         |         |         | (2,968 | )    |         |         | 71    |   |        |        | 3,452 |  
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      
|Net cash provided by operating activities            |                                                                                   |                                                    | 14,899  |         |        |      | 15,435  |         |       |   | 18,217 |       
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      
|Cash flows from investing activities:                |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |       
|                                                    
|                                                     | Net sale (purchase) of marketable securities                                      |                                                    |         | 605     |        |      |         | 18,039  |       |   |        | (6,203 | )    
|                                                    
|                                                     | Purchase of property and equipment                                                |                                                    |         | (3,937  | )      |      |         | (2,819  | )     |   |        | (1,356 | )    
|                                                    
|                                                     | Acquisitions, net of cash acquired                                                |                                                    |         |        |        |      |         | (14,753 | )     |   |        |       |      
|                                                    
|                                                     | Software development costs capitalized                                            |                                                    |         | (3,031  | )      |      |         | (2,234  | )     |   |        | (1,237 | )    
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      
|Net cash used in investing activities                |                                                                                   |                                                    | (6,363  | )       |        |      | (1,767  | )       |       |   | (8,796 | )     
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      
|Cash flows from financing activities:                |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |       
|                                                    
|                                                     | Cash proceeds from exercise of stock options                                      |                                                    |         | 497     |        |      |         | 311     |       |   |        | 148    |      
|                                                    
|                                                     | Cash proceeds from issuance of stock for employee
purchase plan                   |                                                    |         | 689     |        |      |         | 518     |       |   |        | 411    |      
|                                                    
|                                                     | Common stock purchased and retired                                                |                                                    |         | (13,248 | )      |      |         | (11,438 | )     |   |        |       |      
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      
|Net cash (used in) provided by financing activities  |                                                                                   |                                                    | (12,062 | )       |        |      | (10,609 | )       |       |   | 559    |       
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      
|                                                     | Impact of foreign exchange rates                                                  |                                                    |         |        |        |      |         | (109    | )     |   |        | (18    | )    
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      
|Net (decrease) increase in cash and cash equivalents |                                                                                   |                                                    | (3,526  | )       |        |      | 2,950   |         |       |   | 9,962  |       
|                                                    
|Cash and cash equivalents, beginning of year         |                                                                                   |                                                    | 9,515   |         |        |      | 5,989   |         |       |   | 8,939  |       
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      
|Cash and cash equivalents, end of year               |                                                                                   | $                                                  | 5,989   |         |        | $    | 8,939   |         |       | $ | 18,901 |       
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      
|Cash paid during the year for income taxes           |                                                                                   | $                                                  | 11,231  |         |        | $    | 3,791   |         |       | $ | 1,642  |       
|                                                     |                                                                                   |                                                    |         |         |        |      |         |         |       |   |        |        |      

The accompanying notes are an integral part of these consolidated statements.

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DELTEK SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 2001



|1. |  | Organization and Summary of Significant Accounting Policies:
|-- |  | ------------------------------------------------------------

Deltek Systems, Inc. (Deltek or the Company) is
incorporated under the laws of the Commonwealth of
Virginia. The Company designs, develops, sells and
supports a family of integrated software that provide
project-oriented businesses and professional service
firms with tools to more effectively manage, operate and
grow their operations. The Companys software products
have been specifically designed to fulfill the needs of
project-based companies and professional service firms
and include both enterprise-wide systems as well as
application software products that can be used either as
a stand alone application or as an integrated part of the
Companys enterprise-wide systems. Delteks software
products address the needs specific to such organizations
through a wide range of functionality, such as financial
and project accounting, employee time and expense, human
resources management and administration, materials
management and project reporting, customer relationship
management, sales force automation and proposal
generation. The Company also provides a full range of
services, including implementation and consulting,
training and ongoing support.

Since the Companys inception, it has focused exclusively
on developing and providing products and services
designed to meet the needs of project-oriented
organizations. The primary software product suites that
Deltek currently markets consist of Deltek CRM and Deltek
Proposals, a front-office customer relationship
management solution for professional service
environments; Deltek Costpoint®, an advanced client/
server-based business software system designed for all
types of complex project-oriented organizations; Deltek
Advantage, an integrated, project-focused accounting
system designed for professional services firms; Deltek
GCS Premier, project accounting software for small-to
mid-sized organizations providing products or services
under contracts with the federal government; and Deltek
Time Collection (formerly ET Enterprise), an advanced
employee timekeeping system; and Deltek Vision, a
professional services application suite encompassing both
front and back office needs.

Consolidation

The accompanying consolidated financial statements are
prepared in accordance with accounting principles
generally accepted in the United States and include the
accounts of the Company and its subsidiaries, all of
which are wholly owned. All significant intercompany
accounts and transactions have been eliminated in
consolidation.

Net Income Per Common Share

The calculation of basic net income per share is based on
the weighted-average number of Company shares outstanding
in each period. Diluted net income per share is based on
the combined weighted-average number of shares and share
equivalents outstanding, assuming dilution as calculated
under the treasury stock method. No reconciling items
exist between the net income used for basic and diluted
net income per share. The only reconciling item between
the shares used for basic and diluted net income per
share relates to outstanding stock options.

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Managements Use of Estimates

The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.

The Companys estimates of future gross revenues, working
capital, and the remaining estimated lives and
realization of tangible and intangible assets, or both,
could be reduced significantly in the future due to
changes in technology, regulation, available financing,
or competitive pressures.

Revenue Recognition

The Company recognizes software revenue in accordance
with Statement of Position 97-2 Software Revenue
Recognition, and Statement of Position 98-9
Modification of SOP 97-2, Software Revenue Recognition,
with Respect to Certain Transactions.

The Company grants perpetual licenses under a standard
license agreement. For certain of its software products,
the Company had granted its customers a right of return
for a full or partial refund of the license fee during a
refund period which was generally 60 to 90 days from the
date of the initial software delivery. Beginning in the
second half of 2000, the Company limited the right of
refund to a material defect only for the majority of its
Costpoint sales. With this change, the Company generally
recognizes revenue of Costpoint sales upon delivery or if
a right of return exists, upon the expiration of that
right. Due to the decline in Costpoint sales, the impact
on revenue was not significant for 2000. The Company
generally recognizes license fees from its other software
products upon delivery.

Revenues recognized from multiple-element software
arrangements are allocated to each element of the
arrangement based on the fair values of the elements.
The fair value of professional services, technical
support and training have been determined based on the
Companys specific objective evidence of fair value based
on the price charged when the elements are sold
separately. License revenues are recorded under the
residual method described in SOP 98-9 for arrangements in
which licenses are sold with these elements. However,
the entire fee related to arrangements that require the
Company to deliver specified additional upgrades is
deferred until delivery of the specified upgrade has
occurred, unless the Company has vendor-specific
objective evidence of fair value for the upgrade. Also,
the entire fee is deferred for arrangements that require
the Company to deliver future specified products in which
vendor-specific objective evidence of fair value is not
yet available. Fees related to contracts that require
the Company to deliver unspecified additional products
are deferred and recognized ratably over the contract
term.

For contracts that involve significant installment
payments, the Company also evaluates whether fees are
fixed and determinable. If the fees are not fixed and
determinable, the Company defers the recognition of
revenue until the payments become due. Installment plans
extending longer than five months are generally interest
bearing and related revenue is deferred until such
payments become due. For contracts with significant
customization, the Company recognizes revenue based on
percentage of completion.

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Implementation and other consulting services are provided
on a time and materials basis billed monthly and
recognized as the services are performed. Revenues on
time and materials contracts are recognized based on
hours actually incurred at the contract billing rates
plus out of pocket expenses. Disputes may arise in the
normal course of business on implementation projects with
customers for collection of funds because of events such
as delays and changes in contract specifications. Such
claims by the Company are recorded as revenue only when
realization is probable and can be reliably estimated.
Prepaid consulting is recorded as deferred revenue.

Telephone support and periodic enhancements and updates
are provided for maintenance fees that are payable
quarterly and initially represent between 15 percent and
20 percent of the related software license fee on an
annual basis. Customers generally prepay for maintenance
on a quarterly basis. These prepayments are recorded as
deferred revenue until earned. Revenue from quarterly
maintenance and support service is recognized over the
term of the support agreement.

Revenue from third-party equipment and software is
derived from the resale and sublicensing of third-party
hardware and software products in connection with the
license and installation of the Companys products and is
generally recognized upon delivery.

Cash and Cash Equivalents

The Company considers all highly liquid investments
purchased with an original maturity of three months or
less to be cash equivalents.

Marketable Securities

The Company accounts for its debt and equity securities
under SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. At acquisition, the
Company evaluates the classification of debt and equity
securities. To date, all of the securities have been
classified as available for sale and unrealized gains and
losses are recorded in comprehensive income. At each
reporting date, the appropriateness of the
classifications is reassessed.

Included in the balance sheet at December 31, 2000 and
2001 are marketable securities of approximately
$5,217,000 and $11,482,000 respectively, that consist of
investments in municipal bonds, money market accounts and
floating rate bonds and are classified as
available-for-sale and recorded at fair value.

Furniture, Equipment and Leasehold Improvements

Furniture and equipment are stated at cost and are
depreciated using the straight-line method over the
estimated useful lives of the assets, which are generally
three to five years. Leasehold improvements are
amortized over the shorter of the useful life of the
asset or the lease term. The components of furniture,
equipment and leasehold improvements as of December 31,
2000 and 2001 were as follows (in thousands):

|                                                     |  |      |         |      |  |   |         |  
|---------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                     |  | 2000 |         | 2001
|                                                     |  |      |         |     
|Furniture & equipment                                |  | $    | 2,568   |      |  | $ | 2,700   |  
|Computer equipment                                   |  |      | 14,684  |      |  |   | 15,747  |  
|Leasehold improvements                               |  |      | 634     |      |  |   | 795     |  
|                                                     |  |      |         |      |  |   |         |  
|Furniture, equipment and leasehold improvements      |  |      | 17,886  |      |  |   | 19,242  |  
|Less: Accumulated depreciation and amortization      |  |      | (10,528 | )    |  |   | (12,995 | )
|                                                     |  |      |         |      |  |   |         |  
|Furniture, equipment and leasehold improvements, net |  | $    | 7,358   |      |  | $ | 6,247   |  
|                                                     |  |      |         |      |  |   |         |  

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Software Development Costs

Software development costs for products are capitalized
subsequent to the establishment of technological
feasibility, as evidenced by detailed program designs or
by a working model. Capitalization ceases when the
products are available for general release to customers,
at which time amortization of the capitalized costs
begins on a straight-line basis over the estimated lives
of the products, which are generally five years. The
Company capitalized software development costs of
approximately $3,031,000, $2,234,000 and $1,237,000
during 1999, 2000 and 2001, respectively. Amortization
expense of approximately $927,000, $1,044,000, and
$1,357,000 was recorded related to these costs during
1999, 2000, and 2001, respectively, and is included in
cost of software.

Concentrations of Credit Risk

Financial instruments that potentially subject the
Company to significant concentrations of credit risk
consist principally of cash and cash equivalents,
marketable securities, and accounts receivable. The
Company maintains cash and cash equivalents with high
credit quality financial institutions. Marketable
securities consist primarily of investments in municipal
bonds, money market accounts and floating rate bonds with
original maturities at date of purchase beyond three
months. The credit risk with respect to accounts
receivable is generally diversified due to the large
number of entities comprising the Companys customer
base. The Company performs ongoing credit evaluations of
its customers financial condition and maintains
allowances for potential credit losses. Actual losses
and allowances have been within managements
expectations.

Fair Value of Financial Instruments

Financial instruments are defined as cash, evidence of an
ownership interest in an entity, or a contract that
imposes an obligation to deliver cash or other financial
instruments to a second party. Cash and marketable securities are
carried at fair market value and the carrying amounts of
accounts receivable and accounts payable in the
accompanying financial statements approximate fair value
due to the short maturity of these instruments.

Income Taxes

Income taxes are accounted for in accordance with SFAS
No. 109, Accounting for Income Taxes".Under SFAS No.
109, deferred tax assets and liabilities are computed
based on the difference between the financial statement
and tax bases of assets and liabilities and are measured
by applying enacted tax rates and laws for the taxable
years in which those differences are expected to reverse.

Goodwill and Purchased Intangibles

The value of intangible assets acquired primarily relates
to purchased technology that has reached technological
feasibility. Goodwill and purchased intangibles are
being amortized over five years. Goodwill and purchased
intangibles, net, are as follows (in thousands):

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|                                              |  |              |        |      |  |   |        | 
|--------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                              |  | December 31,
|                                              |  | 2000         |        | 2001
|                                              |  |              |        |      |  |   |        | 
|                                             
|Customer Lists, net                           |  | $            | 530    |      |  | $ | 376    | 
|                                             
|Purchased Technology, net                     |  |              | 1,500  |      |  |   | 1,133  | 
|                                             
|Goodwill, net                                 |  |              | 13,208 |      |  |   | 9,956  | 
|                                              |  |              |        |      |  |   |        | 
|                                             
|Total Purchased Intangibles and Goodwill, Net |  | $            | 15,238 |      |  | $ | 11,465 | 
|                                              |  |              |        |      |  |   |        | 

Impairment of Long-Lived Assets

The Company complies with SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. The Company reviews its
long-lived assets, including software development costs;
furniture, equipment and leasehold improvements;
identifiable intangibles; and goodwill, for impairment
whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its
long-lived assets, the Company evaluates the probability
that future undiscounted net cash flows will be less than
the carrying amount of the assets. Impairment is measured
at fair value. No impairment charges were incurred for
the years ended December 31, 1999, 2000 and 2001.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). The Company adopted this
statement on January 1, 2001. SFAS No. 133 and related
amendments establish accounting and reporting standards
requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability
measured at its fair value. The Companys adoption of
SFAS No. 133 did not materially impact its financial
position or results of operations.

In June 2001, the FASB approved SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 prospectively prohibits
the pooling of interest method of accounting for business
combinations initiated after June 30, 2001. SFAS No. 142
requires companies to cease amortizing existing goodwill
on January 1, 2002. SFAS No. 142 also establishes a new
method of testing goodwill for impairment on an annual
basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of
a reporting unit below its carrying value. The adoption
of SFAS No. 142 will result in the Companys
discontinuation of amortization of its goodwill; however,
the Company will be required to test its goodwill for
impairment under the new standard effective January 1,
2002. As of December 31, 2001, the Company had goodwill,
net of accumulated amortization, of approximately $10.0
million that will be subject to the

F-10



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provisions of SFAS No. 142. The Companys results of
operations for the twelve months ended December 31, 2001
included approximately $3.3 million of goodwill
amortization expense that under SFAS No. 142 would not
have been required. The Company is currently reviewing
the provisions of these new pronouncements and their
impact on the consolidated financial statements, which
could have an adverse effect on the Companys future
results of operations if an impairment occurs.

In June 2001, FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations. This statement addresses
financial accounting and reporting for obligations
associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The
purpose of this statement is to develop consistent
accounting for asset retirement obligations and related
costs in the financial statements and provide more
information about future cash outflows, leverage and
liquidity regarding retirement obligations and the gross
investment in long-lived assets. This statement is
effective for financial statements issued for fiscal
years beginning after June 15, 2002. The Company will be
required to implement SFAS No. 143 on January 1, 2003 and
is currently reviewing the provisions of the
pronouncement and its impact on the consolidated
financial statements.

In October 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived
Assets, which supersedes SFAS No. 121 Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. Though it retains the basic
requirements of SFAS 121 regarding when and how to
measure an impairment loss, SFAS 144 provides additional
implementation guidance. SFAS 144 applies to long-lived
assets to be held and used or to be disposed of,
including assets under capital leases of lessees; assets
subject to operating leases of lessors; and prepaid
assets. SFAS 144 also expands the scope of a discontinued
operation to include a component of an entity, and
eliminates the current exemption to consolidation when
control over a subsidiary is likely to be temporary. This
statement is effective for fiscal years beginning after
December 15, 2001. The Company is currently evaluating
the impact of adopting this standard on the consolidated
financial statements.

Reclassifications

Certain amounts in prior years financial statements have
been reclassified to conform to the 2001 presentation.



|2. |  | Business Combinations:
|-- |  | ----------------------

Semaphore Acquisition

On August 9, 2000, the Company acquired all of the
outstanding stock of Semaphore, Inc. for a purchase price
of approximately $10 million in cash and $0.8 million of
non-cash consideration. Semaphore, Inc. provides
advanced financial and project management software and
services for architecture, engineering, construction, and
other professional services firms. Approximately $10.5
million of the purchase price was allocated to purchased
intangibles and goodwill. The Company also allocated
$1.2 million to deferred tax assets, $1.2 million to
accounts receivable and $2.1 million to liabilities.

The following unaudited pro forma statements of
operations show the combined results of the Company and
Semaphore assuming that the acquisition had occurred on
January 1, 2000. The pro forma information is based on
the historical financial statements of these companies,
giving effect to purchase accounting adjustments as of
the beginning of the period. The unaudited pro forma
information is not intended to be indicative of the
future results of our operations or results that might have been
achieved if this transaction had been in effect since the
beginning of these periods.

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##### Table of Contents



Unaudited Pro Forma Results of Operations (in thousands)

|                             |  |      |         |      |  |   |         | 
|---------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                             |  | 1999 |         | 2000
|                             |  |      |         |     
|Revenues                     |  | $    | 106,711 |      |  | $ | 103,482 | 
|Net income                   |  | $    | 14,231  |      |  | $ | 6,083   | 
|Basic net income per share   |  | $    | 0.82    |      |  | $ | 0.37    | 
|Diluted net income per share |  | $    | 0.80    |      |  | $ | 0.37    | 

A/E Management Services Acquisition

On April 14, 2000, Deltek acquired substantially all
assets of A/E Management Services, Inc., including its
complete suite of RFP Proposal automation and tracking
software, for the cash purchase price of $3.5 million.
Net assets acquired were nominal and substantially all of
the purchase price was allocated to purchased intangibles
and goodwill. A/E Managements RFP front-office
automation solution is designed to help the architecture,
engineering, construction, and other professional
services organizations win more contracts by automating
the process of collecting, updating, researching and
retrieving data critical to achieving marketing and
proposal automation success. Unaudited pro forma results
of operations are not provided, as the historical net
income of A/E Management was not significant and pro forma
results would not be significantly different from
reported results for periods prior to the acquisition.

SalesKit Acquisition

In April 1998, the Company acquired substantially all of
the assets of SalesKit Software Corporation (SalesKit),
and assumed certain related liabilities. The purchase
price consisted of cash of $6,054,000 and warrants with
an estimated fair value of $932,000. The warrants
allowed the holder to purchase 130,000 shares of Deltek
common stock at an exercise price of $22 per share and
expired unexercised in 2001.



|3. |  | Accounts Payable and Accrued
Expenses:
|-- |  | --------------------------------------

Accounts payable and accrued expenses consist of the
following (in thousands):

|                                          |  |              |       |      |  |   |       | 
|----------------------------------------- |  | ------------ | ----- | ---- |  | - | ----- | 
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2000         |       | 2001
|                                          |  |              |       |     
|Accrued wages and other employee benefits |  | $            | 4,186 |      |  | $ | 4,471 | 
|Accounts payable                          |  |              | 1,255 |      |  |   | 739   | 
|Deferred rent credits                     |  |              | 119   |      |  |   | 68    | 
|Other accrued expenses                    |  |              | 3,402 |      |  |   | 2,787 | 
|                                          |  |              |       |      |  |   |       | 
|                                          |  | $            | 8,962 |      |  | $ | 8,065 | 
|                                          |  |              |       |      |  |   |       | 

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##### Table of Contents





|4. |  | Income Taxes (in thousands):
|-- |  | ----------------------------

|                     |         |   |        |       |      |   |       |       |  |   |       |       |  
|-------------------- | ------- | - | ------ | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | -
|                     |         |   | 1999   |       | 2000 |   | 2001 
|                     |         |   |        |       |      |   |      
|Current:             |         |   |        |       |      |   |       |       |  |   |       |      
|                     | Federal |   | $      | 8,334 |      |   | $     | 3,600 |  |   | $     | 3,197 |  
|                     | State   |   |        | 1,711 |      |   |       | 1,117 |  |   |       | 916   |  
|                     | Foreign |   |        |      |      |   |       | 43    |  |   |       | 32    |  
|                     |         |   |        |       |      |   |       |       |  |   |       |       |  
|                     |         |   | 10,045 |       |      |   | 4,760 |       |  |   | 4,145 |      
|                     |         |   |        |       |      |   |       |       |  |   |       |       |  
|Deferred:            |         |   |        |       |      |   |       |       |  |   |       |      
|                     | Federal |   |        | 694   |      |   |       | 668   |  |   |       | (711  | )
|                     | State   |   |        | 142   |      |   |       | 207   |  |   |       | (204  | )
|                     | Foreign |   |        |      |      |   |       | 25    |  |   |       | (7    | )
|                     |         |   |        |       |      |   |       |       |  |   |       |       |  
|                     |         |   | 836    |       |      |   | 900   |       |  |   | (922  | )    
|                     |         |   |        |       |      |   |       |       |  |   |       |       |  
|Income tax provision |         | $ | 10,881 |       |      | $ | 5,660 |       |  | $ | 3,223 |      
|                     |         |   |        |       |      |   |       |       |  |   |       |       |  

The income tax provision differs from that computed using
the statutory federal income tax rate of 35 percent in
1999, 2000 and 2001 for the following reasons (in thousands):

|                                               |  |      |        |      |  |      |       |   |  |   |       |  
|---------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                               |  | 1999 |        | 2000 |  | 2001
|                                               |  |      |        |      |  |     
|Computed statutory amount                      |  | $    | 9,833  |      |  | $    | 4,676 |   |  | $ | 1,995 |  
|Tax exempt income                              |  |      | (340   | )    |  |      | (306  | ) |  |   | (139  | )
|State income taxes, net of federal tax benefit |  |      | 1,278  |      |  |      | 724   |   |  |   | 307   |  
|Amortization of non-deductible goodwill        |  |      |       |      |  |      | 407   |   |  |   | 886   |  
|Other                                          |  |      | 110    |      |  |      | 159   |   |  |   | 174   |  
|                                               |  |      |        |      |  |      |       |   |  |   |       |  
|                                               |  | $    | 10,881 |      |  | $    | 5,660 |   |  | $ | 3,223 |  
|                                               |  |      |        |      |  |      |       |   |  |   |       |  

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The following table is a summary of the significant
components of the Companys deferred tax assets and
liabilities for 2000 and 2001 (in thousands):

|                                                      |                                               |   |              |        |      |   |        |        |  
|----------------------------------------------------- | --------------------------------------------- | - | ------------ | ------ | ---- | - | ------ | ------ | -
|                                                      |                                               |   | December 31,
|                                                      |                                               |   |             
|                                                      |                                               |   | 2000         |        | 2001
|                                                      |                                               |   |              |        |     
|Deferred tax assets:                                  |                                               |   |              |        |      |   |        |       
|                                                      | Employee compensation and benefits            |   | $            | 854    |      |   | $      | 900    |  
|                                                      | Allowances and other accrued liabilities      |   |              | 841    |      |   |        | 1,497  |  
|                                                      | Deductible goodwill and purchased intangibles |   |              | 1,687  |      |   |        | 2,097  |  
|                                                      | Net operating loss                            |   |              | 1,238  |      |   |        | 357    |  
|                                                      | Other                                         |   |              | 166    |      |   |        | 33     |  
|                                                      |                                               |   |              |        |      |   |        |       
|Total deferred tax asset                              |                                               |   | 4,786        |        |      |   | 4,884  |       
|                                                      |                                               |   |              |        |      |   |        |       
|Deferred tax liabilities:                             |                                               |   |              |        |      |   |        |       
|                                                      | Depreciation                                  |   |              | (260   | )    |   |        | (526   | )
|                                                      | Software development costs                    |   |              | (2,551 | )    |   |        | (2,503 | )
|                                                      | Deferred revenue                              |   |              | (526   | )    |   |        |       |  
|                                                      | Other                                         |   |              | (154   | )    |   |        | (136   | )
|                                                      |                                               |   |              |        |      |   |        |       
|Total deferred tax liabilities                        |                                               |   | (3,491       | )      |      |   | (3,165 | )     
|                                                      |                                               |   |              |        |      |   |        |       
|Net deferred tax assets                               |                                               |   | 1,295        |        |      |   | 1,719  |       
|Less: long-term net deferred tax (assets)/liabilities |                                               |   | (89          | )      |      |   | 932    |       
|                                                      |                                               |   |              |        |      |   |        |       
|Net short-term deferred tax asset                     |                                               | $ | 1,206        |        |      | $ | 2,651  |       
|                                                      |                                               |   |              |        |      |   |        |        |  

Included in prepaid and other current assets as of
December 31, 2000 was approximately $1.1 million of
income taxes receivable. As of December 31, 2001, the
Company has income taxes payable of approximately $1.7
million.

At December 31, 2001, the Company had net operating loss
carryforwards for income tax purposes of approximately
$1.0 million from its acquisition of Semaphore. These
carryforwards expire through 2020. During 2001, the
Company reduced the net operating loss carryforward
and increased goodwill recorded in
connection with the acquisition by approximately $498,000 for the reduction in the
tax benefit that was thought to exist at the acquisition
date. Net operating loss carryforwards are subject to
review and possible adjustment by the Internal Revenue
Service and may be limited in the event of changes in
ownership pursuant to Section 382 of the Internal Revenue
Code.

Realization of the net deferred tax assets is dependent
on generating sufficient taxable income prior to their
expiration. Although realization is not assured,
management believes it is more likely than not that the
net deferred tax asset will be realized. The amount of
the net deferred tax asset considered realizable,
however, could be reduced in the future if estimates of
future taxable income are reduced.

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|5. |  | Commitments and
Contingencies:
|-- |  | ------------------------------

Office Space Lease

The Company leases office space under noncancellable
operating leases. Minimum rental expense is recognized
on a straight-line basis over the term of the lease,
regardless of when payments are due. Rent expense was
approximately $2,909,000, $3,048,000 and $3,099,000 for
the years ended December 31, 1999, 2000 and 2001,
respectively. The Companys primary lease expires in
March 2002. New space has been acquired for which the
lease commences in April 2002 and expires ten years
thereafter. As of December 31, 2001, the Company had
deposits of $127,000 relating to the lease agreements.
In addition, as of December 31, 2001, the Company entered
into a letter of credit of $1,030,000 for the new office
lease.

As of December 31, 2001, the future minimum operating
lease payments, including the minimum commitments on the
new office lease, are as follows (in thousands):

|             |  |        |        | 
|------------ |  | ------ | ------ | 
|Year Ending  |  |        |        | 
|December 31, |  | Amount
|             |  |       
|2002         |  | $      | 3,423  | 
|2003         |  |        | 3,390  | 
|2004         |  |        | 2,760  | 
|2005         |  |        | 2,734  | 
|2006         |  |        | 2,624  | 
|Thereafter   |  |        | 13,747 | 
|             |  |        |        | 
|             |  | $      | 28,678 | 
|             |  |        |        | 

Line of Credit

In October 2001, the Company renewed and increased its
operating line of credit from $1.0 million to $5.0
million. The Company did not have any borrowings on the
line of credit as of December 31, 2001, which expires on
October 31,2002. The Companys bank has issued a letter
of credit of $1,030,000 for the new office space as of
December 31, 2001, which reduces the availability under
the line of credit. The line of credit contains certain
covenants that include provisions specifying compliance
with certain quarterly and annual financial ratios. As
of December 31, 2001, management determined that the
Company was in compliance with these financial covenants.

Profit-Sharing Plan

The Company has a 401(k) profit-sharing plan covering all
eligible employees. Employees are eligible to participate
in the plan after they have completed six months of
service. Once the eligibility requirement is satisfied,
employees may become participants on the earlier of the
first day of the plan year or the first day of the
seventh month of the plan year coinciding with the
employees eligibility. Company contributions vest
ratably over five years. The Board of Directors approved
a discretionary contribution of 4 percent of eligible
compensation for 1999, 2000 and 2001. The Companys
contribution for 1999, 2000 and 2001 was approximately
$1,211,000, $1,488,000 and $1,251,000 respectively.

Other Matters

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The Companys continuing operations are involved in
various claims incidental to its business. The Company
is contesting these matters and in the opinion of
management, the ultimate resolution of the legal
proceedings will not have a material adverse effect on
the financial position or the future operating results of
the Company.

The Board of Directors of the Company has recommended, and the
Company's shareholders will soon be asked to approve, a merger of the Company with an entity
formed by the co-founders of the Company (the Merger Company). In this merger, shareholders other
than the Merger Company, which will be owned by the co-founders of the Company, members of their
family, and certain employees and other third parties, will receive cash for their common stock.
If the merger is consummated, the Company will no longer be a public
company. The merger will be financed through existing
cash of the Company, bank financing which is currently
being negotiated and loans from the co-founders. There
can be no assurances that the proposed transaction will
be completed or that the Merger Company will obtain
financing on terms and conditions that are acceptable to
the Merger Company or that the co-founders will loan
funds to the Merger Company.



|6. |  | Shareholders Equity:
|-- |  | ---------------------

Common Stock Repurchases

During 1999 and 2000, Deltek repurchased and retired
1,402,500 and 1,697,500 common shares at an average price
of $9.45 and $6.73 per share, respectively. There were
no shares repurchased during 2001.

Preferred Stock

The Companys Board of Directors has the authority,
without further action by the shareholders, to issue
preferred stock in one or more series and to fix the
terms and rights of the preferred stock. Such actions by
the Board of Directors could adversely affect the voting
power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms
that could delay or prevent a change in control of the
Company or make removal of management more difficult.
There are 2,000,000 shares authorized with a par value of
$0.001 per share. There were no shares issued or
outstanding as of December 31, 2001.



|7. |  | Employee Stock Option
Plans:
|-- |  | ----------------------------

1987 Employee Stock Option Plan

Prior to April 1, 1996, the Companys sole stock option
plan was the 1987 Employee Stock Option Plan (the 1987
Plan), a nonqualified plan. No further options can be
issued under the 1987 Plan. Options are exercisable over
ten years, subject to a five-year vesting period.
Options granted pursuant to the 1987 Plan are generally
nontransferable.

At December 31, 2001, 27,850 options were outstanding and
27,850 options were exercisable under the 1987 Plan at
exercise prices ranging from $.39 to $.52 per share.

Employee Time Accelerated Stock Option Plan

On April 1, 1996, the Company created the Employee Time
Accelerated Stock Option Plan (the Accelerated Plan)
and granted options thereunder to purchase 679,500 common
shares. At December 31, 2001, 217,150 options were
outstanding and 214,150 options were exercisable under
the Accelerated Plan.

F-16



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##### Table of Contents



1996 Stock Option Plan

The Companys Board of Directors and the shareholders of
the Company adopted a new 1996 Stock Option Plan (the
1996 Option Plan) in December 1996. A total of
2,100,000 shares of common stock have been reserved for
issuance under the 1996 Option Plan. At December 31,
2001, 1,401,033 options were outstanding and 609,727
options were exercisable at exercise prices ranging from
$3.75 to $18.69 per share. The 1996 Option Plan provides
for grants of incentive stock options to employees
(including officers and employee directors) and for
grants of nonstatutory options to employees, nonemployee
directors and consultants.

The exercise price of incentive stock options granted
under the 1996 Option Plan must not be less than the fair
market value of the common stock on the date of the
grant, and the exercise price of nonstatutory options
must not be less than 85 percent of the fair market value
of the common stock on the date of the grant. With
respect to any optionee who owns stock representing more
than 10 percent of the voting power of all classes of the
Companys outstanding common stock, the exercise price of
any incentive stock option must be equal to at least 110
percent of the fair market value of the common stock on
the date of the grant, and the term of the option must
not exceed five years. The terms of all other options
may not exceed 10 years.

1996 Employee Stock Purchase Plan

The Companys 1996 Employee Stock Purchase Plan (the
Purchase Plan) was adopted by the Companys Board of
Directors and approved by the shareholders of the Company
in December 1996. A total of 400,000 shares of common
stock have been reserved for issuance under the Purchase
Plan. The Purchase Plan permits eligible employees to
purchase common stock through payroll deductions at a
price equal to 85 percent of the lower of fair market
value of the common stock on the first day of the
offering period or the last day of the offering period.
During 1999, 2000 and 2001, employees purchased 49,866
shares, 73,416 shares and 83,586 shares, respectively.

Summary Activity

The following table summarizes the activity of all the
Companys stock option plans:
F-17Table of Contents

|                                         |                   |  |                  |          |                 |   |                |                |  |   |                  |       | 
|---------------------------------------- | ----------------- |  | ---------------- | -------- | --------------- | - | -------------- | -------------- |  | - | ---------------- | ----- | 
|                                         |                   |  |                  |          |                 |   |                |                |  |   | Weighted Average
|                                         |                   |  | Number of Shares |          | Price Per Share |   | Exercise Price
|                                         |                   |  |                  |          |                 |   |               
|Shares under option, December 31, 1998   |                   |  | 1,478,830        |          |                 | $ | 0.25  18.69   |                |  | $ | 11.21            |      
|                                         | Options granted   |  |                  | 283,610  |                 |   |                | 8.75  18.00   |  |   |                  | 11.39 | 
|                                         | Options canceled  |  |                  | (187,859 | )               |   |                | 8.50  18.75   |  |   |                  | 13.21 | 
|                                         | Options exercised |  |                  | (134,680 | )               |   |                | 0.30  11.00   |  |   |                  | 3.80  | 
|                                         |                   |  |                  |          |                 |   |                |                |  |   |                  |      
|Shares under option, December 31, 1999   |                   |  | 1,439,901        |          |                 |   | 0.25  18.69   |                |  |   | 11.67            |      
|                                         | Options granted   |  |                  | 800,860  |                 |   |                | 4.25  19.00   |  |   |                  | 9.73  | 
|                                         | Options canceled  |  |                  | (338,488 | )               |   |                | 4.00  19.00   |  |   |                  | 14.03 | 
|                                         | Options exercised |  |                  | (112,945 | )               |   |                | 0.25  17.63   |  |   |                  | 2.75  | 
|                                         |                   |  |                  |          |                 |   |                |                |  |   |                  |      
|Shares under option, December 31, 2000   |                   |  | 1,789,328        |          |                 |   | 0.30  18.69   |                |  |   | 10.93            |      
|                                         | Options granted   |  |                  | 159,322  |                 |   |                | 3.75     7.00 |  |   |                  | 4.95  | 
|                                         | Options canceled  |  |                  | (238,262 | )               |   |                | 0.44  18.69   |  |   |                  | 11.43 | 
|                                         | Options exercised |  |                  | (64,355  | )               |   |                | 0.30    4.00  |  |   |                  | 2.11  | 
|                                         |                   |  |                  |          |                 |   |                |                |  |   |                  |      
|Shares under option, December 31, 2001   |                   |  | 1,646,033        |          |                 |   | 0.39  18.69   |                |  |   | 10.66            |      
|                                         |                   |  |                  |          |                 |   |                |                |  |   |                  |      
|Options exercisable at December 31, 2001 |                   |  | 851,727          |          |                 |   | 0.39 -- 18.69  |                |  |   | 10.95            |      
|                                         |                   |  |                  |          |                 |   |                |                |  |   |                  |      

Exercise prices for employee stock options outstanding
under the 1987 Employee Stock Option Plan, the Employee
Time Accelerated Stock Option Plan, and the 1996 Stock
Option Plan as of December 31,2001 are as follows:

|                  |             |               |  |                |           |                  |  |                |       |                |  |                  |      |                  |  |  |         |  |  |   |       | 
|----------------- | ----------- | ------------- |  | -------------- | --------- | ---------------- |  | -------------- | ----- | -------------- |  | ---------------- | ---- | ---------------- |  |  | ------- |  |  | - | ----- | 
|                  |             |               |  | Outstanding    |           | Exercisable     
|                  |             |               |  |                |           |                 
|                  |             |               |  |                |           |                  |  |                |       |                |  | Weighted Average |      |                  |  |  |         |  |  |  
|Range of Exercise |             |               |  |                |           | Weighted Average |  | Remaining Life |       |                |  |                  |      | Weighted Average
|Prices            |             | Stock Options |  | Exercise Price |           | (Years)          |  | Stock Options  |       | Exercise Price
|                  |             |               |  |                |           |                  |  |                |       |                |  |                  |      |                  |  |  |         |  |  |   |       | 
|$                 | 0.39-0.52   |               |  |                | 27,850    |                  |  | $              | 0.47  |                |  |                  | 2.60 |                  |  |  | 27,850  |  |  | $ | 0.47  | 
|                  | 3.72-7.00   |               |  |                | 438,180   |                  |  |                | 4.67  |                |  |                  | 6.68 |                  |  |  | 250,966 |  |  |   | 4.23  | 
|                  | 7.25-12.56  |               |  |                | 539,069   |                  |  |                | 8.76  |                |  |                  | 7.94 |                  |  |  | 196,133 |  |  |   | 9.23  | 
|                  | 12.82       |               |  |                | 68,684    |                  |  |                | 12.82 |                |  |                  | 8.61 |                  |  |  | 36,708  |  |  |   | 12.82 | 
|                  | 13.00-16.63 |               |  |                | 110,150   |                  |  |                | 14.46 |                |  |                  | 7.61 |                  |  |  | 41,490  |  |  |   | 14.81 | 
|                  | 16.88-18.69 |               |  |                | 462,100   |                  |  |                | 17.95 |                |  |                  | 6.39 |                  |  |  | 298,580 |  |  |   | 17.93 | 
|                  |             |               |  |                |           |                  |  |                |       |                |  |                  |      |                  |  |  |         |  |  |   |       | 
|$                 | 0.39-18.69  |               |  |                | 1,646,033 |                  |  | $              | 10.66 |                |  |                  | 7.08 |                  |  |  | 851,727 |  |  | $ | 10.95 | 
|                  |             |               |  |                |           |                  |  |                |       |                |  |                  |      |                  |  |  |         |  |  |   |       | 
|                 

The Company adopted the disclosure requirements of SFAS
No. 123, Accounting for Stock-Based Compensation in
accounting for its plans. Accordingly, compensation cost
has been recognized for its stock plans based on
intrinsic value of the stock options at the

F-18



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##### Table of Contents



date such
options were granted to employees (i.e. the difference
between the exercise price and the fair value of the
Companys stock).

Had compensation cost for the Companys stock-based
compensation plans been determined based on the fair
value at the grant dates for awards under those plans
consistent with the method of FASB Statement 123, the
Companys net income and earnings per share would have
been reduced to the pro forma amounts indicated below:

|                                            |  |                                       |        |      |  |      |        |  |  |   |       | 
|------------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|                                            |  | 1999                                  |        | 2000 |  | 2001
|                                            |  |                                       |        |      |  |     
|                                            |  | (In Thousands, except per share data)
|Net income before income taxes, as
reported |  | $                                     | 28,093 |      |  | $    | 13,359 |  |  | $ | 5,700 | 
|Pro forma compensation expense              |  |                                       | 2,589  |      |  |      | 3,448  |  |  |   | 3,847 | 
|Pro forma income tax provision              |  |                                       | 9,873  |      |  |      | 4,281  |  |  |   | 1,049 | 
|                                            |  |                                       |        |      |  |      |        |  |  |   |       | 
|Pro forma net income                        |  | $                                     | 15,631 |      |  | $    | 5,630  |  |  | $ | 804   | 
|                                            |  |                                       |        |      |  |      |        |  |  |   |       | 
|Basic earnings per share, as reported       |  | $                                     | 1.00   |      |  | $    | 0.47   |  |  | $ | 0.16  | 
|Basic earnings per share, pro forma         |  | $                                     | 0.90   |      |  | $    | 0.35   |  |  | $ | 0.05  | 
|Diluted earnings per share, as reported     |  | $                                     | 0.97   |      |  | $    | 0.47   |  |  | $ | 0.16  | 
|Diluted earnings per share, pro forma       |  | $                                     | 0.88   |      |  | $    | 0.34   |  |  | $ | 0.05  | 

The fair value of each option is estimated on the date of
grant using the Black-Scholes option-pricing model with
the following assumptions used for grants in 1999, 2000,
and 2001, respectively; no dividend yield, expected
volatility of 70, 70, and 76 percent, risk-free interest
rates of approximately 6.5, 7.0 and 7.0 percent,
respectively, and expected lives of seven years. The
weighted average fair value per share was $8.70, $7.19,
and $5.39, respectively.

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|8. |  | Segment Reporting
|-- |  | -----------------

The Company operates in one industry segment; the design,
development, marketing and support of project accounting
enterprise resource planning applications software
products. The majority of the Companys revenues are
derived in the United States.

During 2002, the Company began to track profitability by
three operating segments: the Enterprise Group, the
Government Contracting Services Group and the
Professional Services Automation Group. Segment
information was not tracked in 2001 and it is impractical
for the Company to present such information. Revenue
from the Companys significant products and services was
as follows (in thousands):

|                     |                       |   |        |        |      |   |        |        |  |   |        |       |  
|-------------------- | --------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ----- | -
|                     |                       |   | 1999   |        | 2000 |   | 2001  
|                     |                       |   |        |        |      |   |       
|License Revenue      |                       |   |        |        |      |   |        |        |  |   |        |      
|                     | Costpoint             |   | $      | 14,588 |      |   | $      | 10,246 |  |   | $      | 7,057 |  
|                     | Advantage             |   |        | 6,716  |      |   |        | 4,426  |  |   |        | 4,563 |  
|                     | Time Collection       |   |        | 3,762  |      |   |        | 4,192  |  |   |        | 3,755 |  
|                     | GCS/System1           |   |        | 2,474  |      |   |        | 5,595  |  |   |        | 2,614 |  
|                     | CRM                   |   |        | 93     |      |   |        | 1,114  |  |   |        | 1,956 |  
|                     | Semaphore             |   |        |       |      |   |        | 482    |  |   |        | 1,773 |  
|                     | Enterprise Planner    |   |        |       |      |   |        | 220    |  |   |        | 940   |  
|                     | Business Intelligence |   |        | 2,178  |      |   |        | 1,278  |  |   |        | 774   |  
|                     | Other                 |   |        | 25     |      |   |        | 50     |  |   |        |      |  
|                     | Reserves              |   |        |       |      |   |        |       |  |   |        | (275  | )
|Maintenance          |                       |   | 33,429 |        |      |   | 37,224 |        |  |   | 44,032 |      
|Consulting           |                       |   | 31,892 |        |      |   | 30,418 |        |  |   | 23,014 |      
|Third party software |                       |   | 3,087  |        |      |   | 3,013  |        |  |   | 2,603  |      
|                     |                       |   |        |        |      |   |        |        |  |   |        |      
|                     |                       | $ | 98,244 |        |      | $ | 98,258 |        |  | $ | 92,806 |      
|                     |                       |   |        |        |      |   |        |        |  |   |        |      

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|9. |  | Quarterly Financial Data
(unaudited):
|-- |  | -------------------------------------

The following unaudited quarterly data has been prepared
from the financial records of the Company without audit,
and reflects all adjustments which, in the opinion of
management, were of a normal recurring nature and
necessary for a fair presentation of the results of
operations for the interim periods presented (in
thousands, except per share data). During the fourth
quarter of 2000 and 2001, the effective tax rate had to
be adjusted upward due to declining revenues and large
permanent tax differences related to goodwill. The
impact was a significant increase in tax expense for the
respective fourth quarters.

|                             |  |           |        |          |  |               |        |              |  |   |        |  |  |   |        | 
|---------------------------- |  | --------- | ------ | -------- |  | ------------- | ------ | ------------ |  | - | ------ |  |  | - | ------ | 
|                             |  | March 31, |        | June 30, |  | September 30, |        | December 31,
|                             |  | 2000      |        | 2000     |  | 2000          |        | 2000        
|                             |  |           |        |          |  |               |        |             
|Net revenues                 |  | $         | 25,293 |          |  | $             | 22,109 |              |  | $ | 25,348 |  |  | $ | 25,508 | 
|Gross profit                 |  |           | 15,140 |          |  |               | 11,290 |              |  |   | 14,259 |  |  |   | 14,429 | 
|Net income                   |  |           | 4,183  |          |  |               | 818    |              |  |   | 1,819  |  |  |   | 879    | 
|Basic net income per share   |  | $         | 0.25   |          |  | $             | 0.05   |              |  | $ | 0.11   |  |  | $ | 0.06   | 
|Diluted net income per share |  | $         | 0.25   |          |  | $             | 0.05   |              |  | $ | 0.11   |  |  | $ | 0.06   | 

|                             |  |           |        |          |  |               |        |              |  |   |        |  |  |   |        | 
|---------------------------- |  | --------- | ------ | -------- |  | ------------- | ------ | ------------ |  | - | ------ |  |  | - | ------ | 
|                             |  | March 31, |        | June 30, |  | September 30, |        | December 31,
|                             |  | 2001      |        | 2001     |  | 2001          |        | 2001        
|                             |  |           |        |          |  |               |        |             
|Net revenues                 |  | $         | 25,136 |          |  | $             | 23,094 |              |  | $ | 21,765 |  |  | $ | 22,811 | 
|Gross profit                 |  |           | 13,470 |          |  |               | 12,683 |              |  |   | 12,923 |  |  |   | 13,837 | 
|Net income                   |  |           | 904    |          |  |               | 219    |              |  |   | 911    |  |  |   | 443    | 
|Basic net income per share   |  | $         | 0.06   |          |  | $             | 0.01   |              |  | $ | 0.06   |  |  | $ | 0.03   | 
|Diluted net income per share |  | $         | 0.06   |          |  | $             | 0.01   |              |  | $ | 0.06   |  |  | $ | 0.03   | 

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DELTEK SYSTEMS, INC.
Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 1999, 2000, and 2001
(In Thousands)

|                   |                                 |  |           |       |             |  |         |        |         |  |         |       |  |  |   |       | 
|------------------ | ------------------------------- |  | --------- | ----- | ----------- |  | ------- | ------ | ------- |  | ------- | ----- |  |  | - | ----- | 
|                   |                                 |  |           |       |             |  |         |        |         |  | Charged |       |  |  |  
|                   |                                 |  | Beginning |       | Amounts     |  | to      |        | Ending 
|                   |                                 |  | Balance   |       | Written-Off |  | Expense |        | Balance
|                   |                                 |  |           |       |             |  |         |        |        
|December 31, 1999: |                                 |  |           |       |             |  |         |        |         |  |         |       |  |  |   |      
|                   | Allowance for doubtful accounts |  | $         | 689   |             |  | $       | (2,900 | )       |  | $       | 3,615 |  |  | $ | 1,404 | 
|December 31, 2000: |                                 |  |           |       |             |  |         |        |         |  |         |       |  |  |   |      
|                   | Allowance for doubtful accounts |  |           | 1,404 |             |  |         | (3,140 | )       |  |         | 3,388 |  |  |   | 1,652 | 
|December 31, 2001: |                                 |  |           |       |             |  |         |        |         |  |         |       |  |  |   |      
|                   | Allowance for doubtful accounts |  |           | 1,652 |             |  |         | (1,793 | )       |  |         | 2,535 |  |  |   | 2,394 | 

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